AUF BarOps Academic Division (2016)

Coverage: Bar Exams 2005 - 2015

LAW on TAXATION
Sub- Year
Topi
# Questions Subject topi Aske
c
Suggested Answers c d
No, double taxation standing alone and not being forbidden by our
fundamental law is not a valid defense against the legality of a tax measure
(Pepsi Cola v. Tanawan, 69 SCRA
460). However, if double taxation amounts to a direct duplicate taxation, General
Dou dou
Is double taxation a valid 1 in that the same subject is taxed twice when it should be taxed but once, principl
ble ble
1 defense against the legality 2 in a fashion that both taxes are imposed for the same purpose es of 1997
taxa taxa
of a tax measure? 3 by the same taxing authority, within the same jurisdiction or taxing district, taxatio
tion tion
4 for the same taxable period and n
5 for the same kind or character of a tax then it becomes legally objectionable
for being
oppressive and inequitable.
When an item of income is General
doub dou
taxed in the Philippines and principl
Yes, but it is only a case of indirect duplicate taxation which is not legally le ble
2 the same income is taxed in es of 1997
prohibited because the taxes are imposed by different taxing authorities. taxa taxa
another country, is there a taxatio
tion tion
case of double taxation? n
The usual methods of avoiding the occurrence of double taxation are: General met
What are the usual doub
1 Allowing reciprocal exemption either by law or by treaty; principl hod
methods of avoiding the le
3 2 Allowance of tax credit for foreign taxes paid; es of s of 1997
occurrence of double taxa
3 Allowance of deduction for foreign taxes paid; and taxatio avoi
taxation? tion
4 Reduction of the Philippine tax rate . n ding
4 The House of There is no violation of the constitutional requirement that all revenue bills General pow limit 1997
Representatives introduced should originate from the House of Representatives. What is prohibited is for principl er to atio
HB 7000 which envisioned the Senate to enact revenue measures on its own without a bill originating es of taxa ns
to levy a tax on various from the House. But once the revenue bill was passed by the House and sent taxatio tion
transactions. After the bill to the Senate, the latter can pass its ownversion on the same subject matter n
was approved by the consonant with the latter's power to propose or concur with amendments.
House, the bill was sent to This follows from the co-equality of the two chambers of Congress (Tolentino
the Senate as so required v. Secretary of Finance, GR No. 115455, Oct. 30, 1995).
by the Constitution. In the
upper house, instead of a
deliberation on the House
Bill, the Senate introduced
SB 8000 which was its own
version of the same tax.
The Senate deliberated on
this Senate Bill
andapproved the same. The
House Bill and the Senate
Bill were then consolidated
in the Bicameral
Committee. Eventually, the
consolidated bill was
approved and sent to the
President who signed the
same. The private sectors
affected by the new law
questioned the validity of
the enactment on the
ground that the
constitutional provision
requiring that all revenue
bills should originate from
the House of
Representatives had been
 violated.
Resolve the issue.
"X" Corporation was the Yes. The exempting statutes are both granted unilaterally by Congress in the
recipient in 1990 of two tax exercise of taxing powers. Since taxation is the rule and tax exemption, the
exemptions both from exception, any tax exemption unilaterally granted can be withdrawn at the
Congress, one law pleasure of the taxing authority without violating the Constitution (Mactan
revo
exempting the company's Cebu International Airport Authority v, Marcos, G.R No. 120082, September
cati
bond issues from taxes and 11, 1996).
General on
the other exempting the pow
principl of
company from taxes in the er to
5 es of exe 1997
operation of its public Neither of these were issued by the taxing authority in a contract lawfully taxa
taxatio mp
utilities. The two laws entered by it so that their revocation would not constitute an impairment of tion
n ting
extending the tax the obligations of contracts.
stat
exemptions were revoked
utes
by Congress before their
expiry dates. ALTERNATIVE ANSWER:
Were the revocations No. The withdrawal of the tax exemption amounts to a deprivation of
constitutional? property without due process of law, hence unconstitutional.
The rules that have been adopted on prescription are as follows:(a) National
Internal Revenue Code - The statute of limitation for assessment of tax if a
Taxes were generally
return is filed is within three (3) years from the last day prescribed by law for
imprescriptible; statutes,
the filing of the return or if filed after the last day, within three years from
however, may provide
date of actual filing. If no return is filed or the return filed is false or Income pres pres
otherwise. State the rules
6 fraudulent, the period to assess is within TEN YEARS from discovery of the Taxatio cripti crip 1997
that have been adopted on
omission, fraud or falsity. n on tion
this score by
The period to collect the tax is within THREE YEARS from date of assessment.
(a) The National Internal
In the case, however, of omission to file or if the return filed is false or
Revenue Code;
fraudulent, the period to collect is within TEN YEARS from discovery without
need of an assessment.
(b) Tariff and Customs Code - It does not express any general statute of
Tariff
limitation; it provided, however, that "when articles have entered and passed pres pres
(b) The Tariff and Customs and
7 free of duty or final adjustment of duties made, with subsequent delivery, cripti crip 1997
Code; and Custom
such entry and passage free of duty or settlement of duties will, after the on tion
s
expiration of ONE (1) YEAR, from the date of the
 final payment of duties, in the absence of fraud or protest, be final and
conclusive upon all parties, unless the liquidation of Import entry was merely
tentative" (Sec 1603, TCC).
(c) Local Government Code - Local taxes, fees, or charges shall be assessed
Local
within FIVE (5) YEARS from the date they became due. In case of fraud or
Govern pres pres
(c) The Local Government intent to evade the payment of taxes, fees or charges the same maybe
8 ment cripti crip 1997
Code assessed within TEN YEARS from discovery of the fraud or intent to evade
Taxatio on tion
payment. They shall also be collected either by administrative or judicial
n
action within FIVE (5) YEARS from date of assessment (Sec. 194, LGC).
a) A global system of taxation is one where the taxpayer is required to lump
up all items of income earned during a taxable period and pay under a single
General syste syst
set of income tax rules on these different items of income.
a) Discuss the meaning of principl ms ems
9 the Global and Schedular es of of of 1997
A schedular system of taxation provides for a different tax treatmet of
systems of taxation taxatio taxa taxa
different types of income so that a separate tax return is required to be filed
n tion tion
for each type of income and the tax is computed on a per return or per
schedule basis.
b) To which system would General syste syst
you say that the method of principl ms ems
1 b) The method of taxation under the NIRC belongs to a system which is partly
taxation under the National es of of of 1997
0 secular and partly global
Internal Revenue Code taxatio taxa taxa
belongs? n tion tion
1 Juan, a Filipino citizen, has Juan, shall be taxed on both his income from the Philippines accordance with Income Pers Non 1997
1 immigrated to the United the schedular graduated rates of 1%, 2% and 3%. based on the adjusted gross Taxatio onal -
States where he is now a income derived by non-resident citizens from all sources without the n inco resi
permanent resident. He Philippines during each taxable year.and on his Income from the United States me den
owns certain income- because his being a citizen makes him taxable on all Income wherever derived. tax t
earning property in the For the income he derives from his property in thePhilippines, Juan shall be citiz
Philippines from which he taxed on his net income under the Simplified Net Income Taxation Scheme ens
continues to derive (SNITS) whereby he shall be considered as a self-employed individual. His
substantial income. He also Income as employee in the United States, on the other hand, shall be taxed in
receives income from his
employment in the United
States on which the US
 income tax is paid.
On which of the above
income is the taxable, if at
all, in the Philippines, and
how, in general terms,
would such income or
incomes be taxed?
A bachelor was employed
by Corporation A on the
first working day of January
1996 on a part-time basis
with a salary of P3,500.00 a
month. He then received
the 13th month pay. In
September 1996, he Yes, because what is exempt from filing are those individuals who have total
accepted another part-time compensation income not exceeding P60.000 with the taxes correctly
inco exe
Job from Corporation B withheld only by one employer. In this case, even if his aggregate
Income me mpt
1 from which he received a compensation income from both his employers does not exceed P60.000 and
Taxatio tax ed 1997
2 total compensation of that total withholding taxes were correctly withheld by his employers, the fact
n retur to
P14,500.00 for the year that he derives compensation income concurrently from two employers at
n file
1996. The correct total anytime during the taxable year, does not exempt him from filing his income
taxes were withheld from tax return (RA 7497, as implemented by RR No. 4-93).
both earnings.

With the withholding taxes

already paid, would he still
be required to file an
income tax return for his
1996 income?
A corporation, engaged in Yes, the buyer is subject to capital gains tax on the exchange of lots on the Real exc
Capit
real estate' development, basis of prevailing fair market value of the property transferred at the time of Propert han
1 al
executed deeds of sale on the exchange or the fair market value of the property received, whichever is y ge 1997
3 Gain
various subdivided lots. higher (Section 21(e), NIRC). Real property transactions subject to capital gains Taxatio of
Tax
One buyer, after going tax are not limited to sales but also exchanges of property unless exempted by n lot
around the subdivision,
bought a corner lot with a
good view of the
surrounding terrain. He
paid P1.2 million, and the
title to the property was
issued. A year later, the
value of the lot appreciated
to a market value of a specific provision of law.
P1.6 million, and the buyer
decided to build his house
thereon. Upon inspection, ALTERNATIVE ANSWER:
however, he discovered No. The exchange is not subject to capital gains tax because it is merely done
that a huge tower antennae to comply with the intentions of the parties to the previous contract regarding
had been erected on the lot the sale and acquisition of a property with a good view. This is a simple
frontage totally blocking his substitution of the object of sale and since the previous transaction was
view. When he complained, already subjected to tax, no new tax should
the realty company be imposed on the exchange (BIR Ruling No. 21(e) 053-89 008-95).
exchanged his lot with
another corner lot with an
equal area but affording a
better view.

Is the buyer liable for

capital gains tax on the
exchange of the lots?

During the year, a domestic
corporation derived the
following items of revenue:
(a) gross receipts from a
trading business; (b)
interests from money
placements in the banks; (c)
dividends from its stock
investments in domestic
1
corporations; (d) gains from
4
stock transactions through
the Philippine Stock
Exchange; (e) proceeds
under an insurance policy
on the loss of goods. In
preparing the corporate
income tax return, what
should be the tax treatment
oneach of the above items?
Three brothers inherited in
1992 a parcel of land valued
for real estate tax purposes
at P3.0 million which they
held in co-ownership. In
1
1995, they transferred the
5
property to a newly
organized corporation as
their equity which was
placed at the zonal value of
P6.0 million. In exchange
The gross receipts from trading business is includible as an item of income in
the corporate income tax return and subject to corporate income tax rate
based on net income.The other items of revenue will not be included in the
corporate income tax return. The interest from money market placements is
subject to a final withholding tax of 20%; Thedividends from domestic
corporation are exempt from income tax; and gains from stock transactions
with the Philippine Stock Exchange are subject to transaction tax which is in
lieu of the income tax. The proceeds under an insurance policy on the loss of Do
goods is not an item of income but merely a return of capital hence not Dom mes
taxable. estic tic
ALTERNATIVE ANSWER:The gross receipts from trading business is includible Income Corp Cor
as an item of income in the corporate income tax return. Likewise, the gain or Taxatio orat por 1997
loss realized as a consequence of thereceipt of proceeds under an insurance n e ate
policy on the loss of goods will be included in the corporate income tax return Taxa Tax
either as a taxable gain or a deductible loss. The gain or loss is arrived at by tion atio
deducting from the proceeds of insurance (amount realized) the basis of the n
good lost (Sec. 34(a), NIRC). The net income of the corporation shall be subject
to corporate income tax rate of 35%. The other items of revenue will not be
included in thecorporate income tax return. The interest from money market
placements is subject to a final withholding tax of 20%; dividends from
domestic corporations are exempt from income tax; and gains from stock
transactions with the Philippine Stock Exchange are subject to transaction tax
which is in lieu of the income tax.
Yes. The exchange in 1995 is a tax-free exchange so that the subsequent sale
of one of the brothers of his shares to the other two (2) brothers in 1997 will
be subject to income tax.This is so because the tax-free exchange merely
deferred the recognition of income on the exchange transaction. The gain Pers tax-
subject to income tax in the sale is measured by the difference between the Income onal free
selling price of the shares (P2 Million) and the basis of the real property in the Taxatio inco exc 1997
hands of the transferor at the time of exchange which is the fair market value n me han
of his share in the real property at the time of inheritance (Section 34(b)(2), tax ge
NIRC). The net gain from the sale of shares of stock is subject to the schedular
capital gains tax of 10% for the first P100.000 and 20% for the excess thereof
(Section 2l(d), NIRC).
 for the property, the three
brothers thus each received
shares of stock of the
corporation with a total par
value of P2.0 million or,
altogether, a total of P6.0
million. No business was
done by the Corporation,
and the property
remainedidle. In the early
part of 1997, one of the
brothers, who was in dire
need of funds, sold his
shares to the two brothers
for P2.0 million.
Is the transaction subject to
any internal revenue tax
(other than the
documentary stamp tax)?
1 An insolvent company had
6 an outstanding obligation
of P l00,000.00 from a
creditor. Since it could not
pay the debt, the creditor
agreed to accept payment
through dacion en pago a
property which had a
market value of P30.000.00.
In the dacion en pago
document, the balance of
the debt was condoned.
A. What is the tax effect on
the discharge of the unpaid
balance of the obligation on
ALTERNATIVE ANSWER:The exchange effected in 1995 did not qualify as a tax-
free exchange because there is no showing that the three brothers gained
control of the corporation by acquiring at least 51% of the voting rights. Since
the entire gain on the exchange was previously subjected to income tax, then,
the sale will also be taxable if a gain results therefrom. In the instant case, the
sale will not be subject to any internal revenue tax other than the
documentary stamp tax, because the seller did not realize any gain from the
sale. The gain is measured by the difference between the amount realized
(selling price) and the basis of the property. Incidentally, the basis to him is his
share in the value of the property received at the time of exchange, which is
P2 Million, an amount, just equal to the amount realized from the sale.
(a) The condonation of the unpaid balance of the obligation has the effect of a Donor’s Daci effe 1997
donation made on the part of the creditor. It is obvious that the creditor Tax on ct
merely desires to benefit the debtor and without any consideration therefore en
cancels the debt, the amount of the debt cancelled is a gift from the creditor Pago
to the debtor and need not be included in the latter's gross income (Sec. 50,
RR No. 2);
ALTERNATIVE ANSWER:
(a) If the discharge was prompted by the insolvency of the debtor company,
then it is a clear case of a write-off of a bad debts which has no tax
consequence to the debtor.
 the debtor corporation?
B. Insofar as the creditor is
concerned, how is he
1 Donor’s
effected tax-wise as a
7 Tax
consequence of the
transaction?
1 Mr. Santos died intestate in
8 1989 leaving his spouse and
five children as the only
heirs. The estate consisted
of a family home and a
four-door apartment which
was being rented to
tenants. Within the year, an
extrajudicial settlement of
the estate was executed
from the heirs, each of
them receiving his/her due
share. The surviving spouse
assumed administration of
the property. Each year, the
net income from the rental
property was distributed to
all, proportionately, on
which they paid
respectively, the
corresponding income tax.
In 1994, the income tax
returns of the heirs were
examined and deficiency
income tax assessments
were issued against each of
(b) For the difference of P70,000 the creditor shall be subject to donor's tax at
Daci
the applicable rates provided for under the National Internal Revenue Code.
on effe
ALTERNATIVE ANSWER: 1997
en ct
(b) The write-off of the bad debt will entitle the creditor to claim the same as a
Pago
deduction from its gross income.
Yes, the assessments were justified because for income tax purposes, the co- TAX Asse Unr 1997
ownership of inherited property is automatically converted into an REMEDI ssme egis
unregistered partnership from the moment the said properties are used as a ES nt tere
common fund with intent to produce profits for the heirs in proportion to d
their shares in the inheritance. Part
ners
hip
From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the income thereof, for each of
them to manage and
dispose of as exclusively his own without the intervention of the other heirs,
and, accordingly, he becomes liable individually for all taxes in connection
therewith. If after
such partition, he allows his shares to be held in common with his co-heir
under a single management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt that, even if no
document or instrument were executed for the purpose, for tax purposes, at
least, an unregistered partnership is formed (Lorenzo Ona, et al v. CIR, 45
SCRA 74).
ALTERNATIVE ANSWER:
No, the assessments are not justified. The mere sharing of income does not of
itself establish a partnership absent any clear intention of the co-owners who
are only awaiting liquidation of the estate.
 them for the years 1989 to
1993, inclusive, as having
entered into an
unregistered partnership.
Were the assessments
justified?
Mar and Joy got married in
1990. A week before their
marriage. Joy received, by
way of donation, a
condominium unit worth
P750.000.00 from her
The events in the life of spouses. Mar and Joy, which have income tax
parents. After marriage,
incidences are the following:
some renovations were
1) Their marriage in 1990 qualifies them to claim personal exemption for
made at a cost of
married individuals; 2) Their employment in 1991 by the same company will
P150.000.00. The spouses Pers mar
make them liable to the income tax imposed on gross compensation income;
were both employed in Income onal ried
1 3) Birth of their first child in December 1992 would give rise to an additional
1991 by the same company. Taxatio inco indi 1997
9 exemption of P5,000 for taxable year 1992;
On 30 December 1992, n me vidu
4) Birth of their second child in November 1993 would likewise entitle them to
their first child was born, tax al
claim additional exemption of P5,000 raising their additional personal
and a second child was
exemptions to P 10,000 for taxable year 1993; and
born on 07 November
5) Sale of their condominium unit in 1994 shall make the spouses liable to the
1993. In 1994, they sold the
5% capital gains tax on the gain presumed to have been realized from the sale.
condominium unit and
bought a new unit.
Under the foregoing facts,
what were the events in the
life of the spouses that had
income tax incidences?
 The following transactions shall be deemed sale:
Under the Value Added tax a) Transfer, use, or consumption not in the course of business of goods
(VAT), the tax is imposed on originally intended for sale or for use in the course of business; Dee
Dee
sales, barter, or exchange b) Distribution or transfer to: med
med
of goods and services. The (1) Shareholders or investors as share in theprofits of VAT-registered persons; Value- Sale
2 Sales
VAT is also imposed on or Added s 1997
0 Tran
certain transactions (2) Creditors in payment of debt; Tax Tran
sacti
"deemed-sales". What are c) Consignment of goods if actual sale is not made within 60 days following the sacti
ons
these so-called transactions date such goods were consigned; and ons
"deemed sales'? d) Retirement from or cessation of business, with respect to inventories of
taxable goods existing as of such retirement or cessation.
A corporation files its
income tax return on a
calendar year basis.
For the first quarter of
1993, it paid on 30 May
1993 its quarterly income
The claim for refund has prescribed. The counting of the two-year prescriptive
tax in the amount of P3.0
period for filing a claim for refund is counted not from the date when the
million. On 20 August 1993,
quarterly income taxes were paid but on the date when the final adjustment
it paid the second quarterly
return or annual income tax return was filed (CIR v. TMX Sales Inc., G.R. No. clai
income tax of P0.5 million.
83736, January 15, 1992; CIR v. Phi/Am Life Insurance Co., Inc., G.R. No. TAX m Pres
2 The third quarter resulted
105208, May 29, 1995). It is obvious that the annual income tax return was REMEDI for crip 1997
1 in a net loss, and no tax was
filed before January 10, 1994 because the written claim for refund was filed ES refu tion
paid. For the fourth and
with the BIR on January 10, 1994. Since the two-year prescriptive period is not nd
final return for 1993, the
only a limitation of action in the administrative stage but also a limitation of
company reported a net
action for bringing the case to the judicial stage, the petition for review filed
loss for the year, and the
with the CTA on March 02, 1996 is beyond the reglementary period.
taxpayer indicated in the
income tax return that it
opted to claim arefund of
the quarterly income tax
payments.
On 10 January 1994, the
 corporation filed with the
Bureau of Internal Revenue
a written claim for the
refund of P3.5 million.
BIR failed to act on the
claim for refund; hence, on
02 March 1996, the
corporation filed a petition
for review with the Court of
Tax Appeals on its claim for
refund of the overpayment
of its 1993 quarterly
income tax. BIR, in its
answer to the petition,
alleged that the claim for
refund was filed beyond the
reglementary period.
Did the claim for refund
prescribe?
(a) A taxpayer received, on (a) No. Before taxpayer can avail of Judicial remedy he must first exhaust
15 January 1996 an administrative remedies by filing a protest within 30 days from receipt of the
assessment for an internal assessment. It is the Adm
revenue tax deficiency. On Commissioner's decision on the protest that give the Tax Court jurisdiction inistr
Judicial exh
2 10 February 1996, the over the case provided that the appeal is filed within 30 days from receipt of ative
Remedi aus 1997
2 taxpayer forthwith filed a the Commissioner's decision. An assessment by the BIR is not the rem
es tion
petition for review with the Commissioner's decision from which a petition for review may be filed with edie
Court of Tax Appeals. Could the Court of Tax Appeals. Rather, it is the action taken by the Commissioner in s
the Tax Court entertain the response to the taxpayer's protest on the assessment that would constitute
petition? the appealable decision (Section 7, RA 1125).
(b) Under the above factual Adm
(b) No, the petition for review can not be entertained by the Court of Appeals,
setting, the taxpayer, Judicial inistr exh
2 since decisions of the Commissioner on cases involving claim for tax refunds
instead of questioning the Remedi ative aus 1997
3 are within the exclusive and primary jurisdiction of the Court of Tax Appeals
assessment he received on es rem tion
(Section 7.RA1125).
15 January 1996 paid, on 01 edie
 March 1996 the "deficiency
tax" assessed. The taxpayer
requested a refund from
the Commissioner by
submitting a written claim
on 01 March 1997. It was s
denied. The taxpayer, on 15
March 1997, filed a petition
for review with the Court of
Appeals. Could the petition
still be entertained?
The following are the Special Duties imposed under the
Tariff and Customs Code:
(a) Dumping Duty - This is a duty levied on imported goods where it appears
that a specific kind or
class of foreign article is being imported into or sold or is likely to be sold in
the Philippines at a price less than its fair value;
(b) Countervailing Duty - This is a duty equal to the ascertained or estimated
amount of the subsidy or bounty or subvention granted by the foreign country Kind Kind
Explain briefly each of the
on the production, manufacture, or exportation into the Philippines of any Tariff s of s of
special customs duties
2 article likely to injure an industry in the Philippines or retard or considerable and cust cust
authorized 1997
4 retard the establishment of such industry; Custom om om
under the Tariff and
(c) Marking Duty - This is a duty on an ad valorem basis imposed for s duti duti
Customs Code.
improperly marked articles. The law requires that foreign importations must es es
be marked in any official language of the Philippines the name of the country
of origin of the article;
(d) Discriminatory or Retaliatory Duty - This is a duty imposed on imported
goods whenever it is found as a fact that the country of origin discriminates
against the commerce of the Philippines in such a manner as to place the
commerce of the Philippines at a disadvantage compared with the commerce
of any foreign country.
Tariff and Customs Code (a) The Bureau of Customs normally avails itself of the ADMINISTRATIVE Tariff Adm Ad
2
allows the Bureau of REMEDY of seizure, such as by enforcing the tax lien on the imported articles, and inistr mini 1997
5
Customs to resort to the instead of the judicial remedy when the goods to which the tax lien attaches, Custom ative stra
 administrative remedy of
seizure, such as by
enforcing the tax lien on
the imported article, and to
the judicial remedy of filing regardless of ownership, is still in the custody or control of the Government. In tive
rem
an action in court. When the case, however, of importations which are prohibited or undeclared, the rem
s edie
does the Bureau of remedy of seizure and forfeiture may still be exercised by edie
s
Customs normally avail the Bureau of Customs even if the goods are no longer in its custody. s
itself;
(a) of the administrative,
instead of the judicial
remedy, or
(b) On the other hand, when the goods are properly released and thus beyond
judic judi
the reach of tax lien, the government can seek payment of the tax liability Tariff
ial cial
2 (b) of the latter, instead of through judicial action since the tax liability of the importer constitutes a and
rem rem 1997
6 the former, remedy? personal debt to the government, therefore, enforceable by action. In this Custom
edie edie
case judicial remedy is normally availed of instead of the administrative s
s s
remedy.
Fun
The following are the fundamental principles governing real property taxation: Fund dam
1) Real property shall be appraised at its current and fair market value; Real ame enta
State the fundamental
2) Real property shall be classified for assessment purposes on the basis of its Propert ntal l
2 principles underlying real
actual use:3) Real property shall be assessed on the basis of a uniform y princ prin 1997
7 property taxation in the
classification within each local government unit;4) The appraisal, assessment, Taxatio iples cipl
Philippines.
levy, and collection of real property tax shall not be let to any private person; n (RPT es
and5) The appraisal and assessment of real property shall be equitable. ) (RPT
)
2 Give the remedies available The remedies available to the local government units to enforce collection of Local rem coll 1997
8 to local government units taxes, fees, and charges are: Govern edie ecti
to enforce the collection of ment s on
taxes, fees, and charges? 1) ADMINISTRATIVE REMEDIES of distraint of personal property of whatever Taxatio
kind whether tangible or intangible, and levy of real property and interest n
therein; and
2) JUDICIAL REMEDY by institution of an ordinary civil action for collection
 with the regular courts of proper jurisdiction.

Uniformity in the imposition and/or collection of taxes means that all taxable
articles, or kinds of property of the same class shall be taxed at the same rate.
The requirement of uniformity is complied with when the tax operates with
the same force and effect in everyplace where the subject of it is found
(Churchill & Tail v. Conception, 34 Phil. 969). It does not mean that lands,
chattels, securities, income, occupations, franchises, privileges, necessities and
luxuries shall be assessed at the same rate. Different articles maybe taxed at
different amounts provided that the rate is uniform on the same class General Colle
Explain the requirement of
everywhere with all people at all times. Accordingly, singling out one Principl ction Unif
uniformity as a limitation in
1 particular class for taxation purposes does not infringe the requirement of es OF of orm 1998
the imposition and/or
uniformity. Taxatio Taxe ity
collection of taxes.
FIRST ALTERNATIVE ANSWER:The criteria is met when the tax laws operate n s
equally and uniformly on all persons under similar circumstances. All persons
are treated in the same manner, the conditions notbeing different, both in
privileges conferred and liabilities imposed. Uniformity in taxation also refers
to geographical uniformity. Favoritism and preference is not allowed.
SECOND ALTERNATIVE ANSWER:A tax is deemed to have satisfied the
uniformity rule when it operates with the same force and effect in every place
where the subject maybe found. (Phil. Trust & Co. v. Yatco, 69 Phil.420).

From what sources of

income are the following
persons/corporations Sour
taxa
taxable by the Philippine Income ces
1) A citizen of the Philippines residing therein is taxable on all income derived ble
2 government? Taxatio of 1998
from sources within and without the Philippines. inco
n Inco
me
me
1) Citizen of the Philippines
residing therein;
2) A nonresident citizen is taxable only on income derived from sources within Income Sour taxa
3 2) Non-resident citizen; 1998
the Philippines. Taxatio ces ble
 of
inco
n Inco
me
me
3) An individual citizen of Sour
taxa
the Philippines who is 3) An individual citizen of the Philippines who is working and deriving income Income ces
ble
4 working and deriving from abroad as an overseas contract worker is taxable only on income from Taxatio of 1998
inco
income from abroad as an sources within the Philippines. n Inco
me
overseas contract worker; me
Sour
taxa
4) An alien individual, Income ces
4) An alien individual, whether a resident or not of the Philippines, is taxable ble
5 whether a resident or not Taxatio of 1998
only on income derived from sources within the Philippines inco
of the Philippines; n Inco
me
me
Sour
taxa
Income ces
5) A domestic corporation is taxable on all income derived from sources within ble
6 5) A domestic corporation; Taxatio of 1998
and without the Philippines. inco
n Inco
me
me
State whether the following
transactions are a) VAT
Exempt, b) subject to VAT Cove Cov
at 10%; or c) subject to VAT 1) VAT exempt. Sale of agricultural products, such as fresh vegetables, in their Value- red ered
7 at 0%: original state, of a kind generally used as, or producing foods for human Added Tran Tran 1998
1) Sale of fresh vegetables consumption is exempt from VAT. (Section 109(c), NIRC). Tax sacti sacti
by Aling Ining at on on
thePamilihang Bayan ng
Trece Martirez.
2) Services rendered by
Jake's Construction Cove Cov
2) VAT at 0%. Since Jake's Construction Company has rendered services to the
Company, a contractor to Value- red ered
World Health Organization, which is an entity exempted from taxation under
8 the World Health Added Tran Tran 1998
international agreements to which the Philippines is a signatory, the supply of
Organization in the Tax sacti sacti
services is subject to zero percent (0%) rate. (Sec. 108[B1(3), NIRC).
renovation of its offices in on on
Manila.
 Cove Cov
3) Sale of tractors and other 3) VAT at 10%. Tractors and other agricultural implements fall under the
Value- red ered
agricultural implements by definition of goods which include all tangible objects which are capable of
9 Added Tran Tran 1998
Bungkal Incorporated to pecuniary estimation (Sec. 106[A1(1), NIRC, the sales of which are subject to
Tax sacti sacti
local farmers. VAT at 10%.
on on
Cove Cov
4) Sale of RTW by Cely's
4) This is subject to VAT at 10%. This transaction also falls under the definition Value- red ered
1 Boutique, a Filipino dress
of goods which include all tangible objects which are capable of pecuniary Added Tran Tran 1998
0 designer, in her dress shop
estimation (Sec. 106[A1(1), NIRC, the sales of which are subject to VAT at 10%. Tax sacti sacti
and other outlets.
on on
5) Fees for lodging paid by 5) VAT Exempt. The monthly fee paid by each student falls under the lease of
Cove Cov
students to Bahay-Bahayan residential units with a monthly rental per unit not exceeding Php 8,000,
Value- red ered
1 Dormitory, a private entity which Is exempt from VAT regardless of the amount of aggregate rentals
Added Tran Tran 1998
1 operating a student received by the lessor during the year. (Sec. 109(x), NIRC). The term unit shall
Tax sacti sacti
dormitory (monthly fee mean per person in the case of dormitories, boarding houses and bed spaces
on on
PI,500). (Sec. 4.103-1, RRNo. 7-95).
Arnold , who is single,
cohabits with Vilma, who is
legally married to Zachary.
Arnold and Vilma have six
minor children who live and Hea
depend upon Arnold for 1) Yes. An unmarried man who has illegitimate minor children who live with Income Exe d of
1
their chief support. The him and depend upon him for their chief support is considered as "head of the Taxatio mpti the 1998
2
children are not married family" (RR No. 2-98 implementing Section 35, NIRC). n ons Fam
and not gainfully employed. ily

1) For income tax purposes,

may Arnold be considered
as "head of a family?"
2) Is Arnold entitled to Hea
2) No. Arnold is only entitled to deduct additional personal exemption for four
deduct from his gross Income Exe d of
1 (4) out of the six (6) illegitimate children. The maximum number of
income, an additional Taxatio mpti the 1998
3 dependents for purposes of the additional personal exemption is four. (Sec.
exemption for each of his n ons Fam
35, NIRC).
illegitimate child? ily
 The requisites for deducibility of a loss are 1) loss belongs to the taxpayer; 2) Ded
General
actually sustained and charged off during the taxable year; 3) evidenced by a ucti
principl Ded
1 Give the requisites for closed and completed transaction; 4) not compensated by Insurance or other bilit
es of uctio 1998
4 deducibility of a loss. forms of indemnity; 5) not claimed as a deduction for estate tax purposes in y of
taxatio ns
case of individual taxpayers; and 6) if it is a casualty loss it is evidenced by a a
n
declaration of loss filed within 45 days with the BIR. loss
1. The proper allowance of depreciation of any property used in trade or
Pro
business refers to the reasonable allowance for the exhaustion, wear and tear
per
(including reasonable allowance for obsolescence) of said property. The
allo
reasonable allowance shall include, but not limited to, an allowance computed General
1 What is the proper wan
under any of the following methods: principl Depr
1 allowance for depreciation ce
(a) straight-line method; es of ecia 1998
5 of any property used in of
(b) declining-balance method; taxatio tion
trade or business? Dep
(c) sum-of-years-digit method; and n
reci
(d) any other method which may be prescribed by the Secretary of Finance
atio
upon recommendation of the Commissioner of Internal Revenue (Sec. 34(F).
n
NIRC).
Pro
per
2 What is the annual
allo
depreciation of a General
2. The annual depreciation of the depreciable fixed asset may be computed on wan
depreciable fixed asset with principl Depr
1 the straight-line method which will allow the taxpayer to deduct an annual ce
a cost of P100,000 and an es of ecia 1998
6 depreciation of Php4,500, arrived at by dividing the depreciable value (Php of
estimated useful life of 20 taxatio tion
l00.000-Phpl0.000) of Php90,000 by the estimated useful life (20 years). Dep
years and salvage value of P n
reci
10,000 after its useful life?
atio
n
 The Commissioner of Internal Revenue is authorized to inquire into the bank
deposits of: 1 ) a decedent to determine his gross estate;2 ) any taxpayer who
has filed an application for compromise of his tax liability by means of financial
incapacity to pay his tax liability (Sec. 6(F). NIRC).3 ) Where the taxpayer has
signed a waiver authorizing the Commissioner or his duly authorized
Can the Commissioner of representatives to Inquire into the bank deposits.(Note: This answer was not secr
secr
Internal Revenue inquire part of the answers enumerated in the UP Law Answers to the Bar in this but ecy
ecy
into thebank deposits of a was later added in the recent UP Law Answers to the Bar as a result of AMLA of
Judicial of
1 taxpayer? If so, does this Law of 2001) ban
Remedi bank 1998
7 power of theCommissioner The limited power of the Commissioner does not conflict with R.A. No. 1405 k
es depo
conflict with R.A. 1405 because the provisions of the Tax Code granting this power is an exception to dep
sit
(Secrecy of BankDeposits the Secrecy of Bank Deposits Law as embodied in a later legislation. osit
law
Law) Furthermore, in case a taxpayer applies for an application to compromise the law
payment of his tax liabilities on his claim that his financial position
demonstrates a clear inability topay the tax assessed, his application shall not
be considered unless and until he waives in writing his privilege under R.A. No.
1405, and such waiver shall constitute the authority of the Commissioner to
inquire into the bank deposits of the taxpayer.

Is the BIR authorized to
collect estate tax
deficiencies by the
summary remedy of levy
upon and sale of real
1 mary
properties of the decedent
8 rem
without first securing the
authority of the court
sitting in probate over the
supposed will of the
decedent?
Ace Tobacco Corporation
bought a parcel of land
situatedat Pateros and
donated it to the Municipal
Government ofPateros for
the sole purpose of
devoting the said land as
1 arelocation site for the less
9 fortunate constituents of
saidmunicipality. In
accordance therewith, the
Municipal Governmentof
Pateros issued to the
occupants/beneficiariesCer
tificates of Award giving to
them the respective
Yes. The BIR is authorized to collect estate tax deficiency through the
summary remedy of levying upon and sale of real properties of a decedent,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased, because the collection of estate tax is
executive in character. As such the estate tax is exempted from the
application of the statute of non-claims, and this is justified by the necessity of
esta
government funding, immortalized in the maxim that taxes are the lifeblood
sum te
of the government (Marcos v. CIR, G.R. No. 120880, June 5, 1997). TAX
tax
ALTERNATIVE ANSWER: REMEDI 1998
defi
Yes, if the tax assessment has already become final, executory and ES
edy cien
enforceable. The approval of the court sitting in probate over the supposed
cy
will of the deceased is not a mandatory requirement for the collection of the
estate tax. The probate court is determining issues which are not against the
property of the decedent, or a claim against the estate as such, but is against
the interest or property right which the heir, legatee, devisee, etc. has in the
property formerly held by the decedent. (Marcos v. CIR, G.R, No.120880, June
5, 1997).
The donation by Ace Tobacco Corporation is exempt from the donor's tax
because it qualifies as a gift to or for the use of any political subdivision of the
National Government (Section 101(2), NIRC). The conveyance is likewise
exempt from documentary stamp tax because it is a transfer without
consideration.
Since the donation is to be used as a relocation site for the less fortunate
Real exe
constituents of the municipality. It may be considered as an undertaking for
Propert mpti don
human settlements,hence the value of the land may be deductible in full from
y on/d or's 1998
the gross income of Ace Tobacco Corporation if in accordance to a National
Taxatio educ tax
Priority Plan determined by the National Economic Development Authority.
n tions
(Sec. 34{H](2)(a), NIRC). If the utilization is not in accordance to a National
Priority Plan determined by the National Economic Development Authority,
then Ace Tobacco Corporation may deduct the value of the land donated only
to the extent of five (5%) percent of its taxable income derived from trade or
business as computed without the benefit of the donation. (Sec. 34[H](2)(a) in
relation to Sec. 34[H](1), NIRC).
 The Municipality of Pateros is not subject to any donor's tax on the value of
areaswhere their houses land it subsequently donated, it being exempt from taxes as a political
are erected. Through subdivision of the National Government. The
Ordinance No. 2,Series of occupants/beneficiaries are subject to real property taxes because they now
1998, the said municipal own the land.
government ordained ALTERNATIVE ANSWER on Taxability of Municipality and Awardees:The
thatthe lots awarded to the awarding by the Municipal Government of lots to specific awardees or donees
awardees/donees be is likewise exempt from the donor's tax because it is only an implementation
finallytransferred and of the purpose for which the property was given by Ace Tobacco Corporation.
donated to them. The purpose of the first donation is to devote the land as a relocation site for
Determine the the less fortunate constituents. If later on the Municipality gives out
taxconsequence of the Certificates of Award over specific lots occupied by thequalified
foregoing dispositions with occupants/beneficiaries, this is intended to perpetuate the purpose of the
respect toAce Tobacco previous donor, the Municipality acting merely as a conduit and not the true
Corporation, the Municipal donor. This is simply a donation by the Municipality in form but not in
Government ofPateros, and substance.
the The receipt by the occupant beneficiaries of their respective lots through the
occupants/beneficiaries. Certificate of Award has no tax implications. They are, however, liable for real
property taxes.
Capi
Capit
tal
Real al
Gain
1. What is the difference CAPITAL GAINS are gains realized from the sale or exchange of capital assets, Propert Gain
2 s vs.
between capital gains and while ORDINARY GAINS refer to gains realized from the sale or disposition of y s vs. 1998
0 ordi
ordinary gains? ordinary assets. Taxatio ordi
nary
n nary
gain
gains
s

2 2. What does the term
1 "ordinary income" include?
The term ordinary income includes any gain from the sale or exchange of
property which is not a capital asset. These are the gains derived from the sale
or exchange of property such as stock in trade of the taxpayer or other
property of a kind which would properly be included in the inventory of the
Real
taxpayer if on hand at the close of the taxable year, orproperty held by the ordi
Propert cov
taxpayer primarily for sale to customers in the course of his trade or business, nary
y erag 1998
or property used in trade or business of a character which is subject to the inco
Taxatio e
allowance for depreciation, or real property used in trade or business of the me
n
taxpayer. (Sec. 22 [Z] in relation to Sec. 39[A](1), both of the NIRC).
ALTERNATIVE ANSWER:The term ordinary income includes income from
performance of services, whether professional or personal, gains accruing
from business, and profit arising from the sale or exchange of ordinary assets.

An individual taxpayer who pro

owns a ten (10) door pert
apartment with a monthly Real y
No. The seller is not liable to pay the capital gains tax because the property
rental of P10,000 each Propert sold
2 sold is an ordinary asset, i.e. real property used in trade or business. It is
residential unit, sold this y sale is 1998
2 apparent that the taxpayer is engaged in the real estate business, regularly
property to another Taxatio ordi
renting out the ten (10) door apartment.
individual taxpayer. Is the n nary
seller liable to pay the asse
capital gains tax? t
1 ) It depends. If the prize is considered as winnings derived from sources
within the Philippines, it is subject to withholding of final tax (Sec. 24[B] in
Is the prize of one million relation to Sec. 57[A], NIRC). If derived from sources without the Philippines, it
pesos awarded by the is not subject to withholding of final tax because the Philippine tax law and read
Reader's Digest subject to regulations could not reach out to foreign with er's
Income
2 withholding of final tax? jurisdictions. holdi dige
Taxatio 1998
3 Who is responsible for 2 ) The tax shall be withheld by the Reader's Digest or local agent who has ng st
n
withholding the tax? What control over the payment of the prize. tax awa
are the liabilities for failure 3 ) Any person required to withhold or who willfully fails to withhold, shall, in rd
to withhold such tax? addition to the other penalties provided under the Code, be liable upon
conviction to a penalty equal to the total amount of tax not withheld (Sec.
251, NIRC). In case of failure to withhold the tax or in case of under
 withholding, the deficiency tax shall be collected from the payor/withholding
aget (1st par., Sec. 2.57 [A], R.R. No. 2-98).
Any person required under the Tax Code or by rules and regulations to
withhold taxes at the time or times required by law or rules and regulations
shall, in addition to other penalties provided by law, upon conviction be
punished by a fine of not less than Ten thousand pesos (Php 10.0OO) and
suffer imprisonment of not less than one (1) year but not more than ten (10)
years (1st par., Sec. 255, NIRC).
MC Garcia, a contractor
who won the bid for the
construction of a public
highway, claims as
Local
expenses, facilitation fees No. The alleged facilitation fees which he claims as standard operating facil
Govern dedu
2 which according to him is procedure in transactions with the government comes in the form of bribes or itati
ment ction 1998
4 standard operating "kickback" which are notallowed as deductions from gross income (Section on
Taxatio s
procedure in transactions 34(A)(l)(c), NIRC). fees
n
with the government. Are
these expenses allowable
as deduction from gross
income?
1) No, provided the recipient candidate had complied with the requirement
for filing of returns of contributions with the Commission on Elections as
Are contributions to a
required under the Omnibus Election Code.
candidate in an election elec elec
subject to donor's tax? On tion tion
2 2) The contributor is not allowed to deduct the contributions because the said Donor’s
the part of the contributor, cont cont 1998
5 expense is not directly attributable to, the development, management, Tax
is it allowable as a ribu ribu
operation and/or conduct of a trade, business or profession {Sec. 34[AJ(l)(a),
deduction from gross tion tion
NIRC). Furthermore, if the candidate is an
income?
incumbent government official or employee, it may even be considered as a
bribe or a kickback (Sec. 34[AJ(l)(c), NIRC).
An information was filed in No. Criminal violations, if already filed in court, may not be compromised (Sec. afte
Judicial com
2 court for willful non- 204[B], NIRC). Furthermore, the payment of the tax due after apprehension r
Remedi pro 1998
6 payment of income tax the shall not constitute a valid defense in any prosecution for violation of any crim
es mise
assessment of which has provisions of the Tax Code (Sec. 247(a), NIRC). Finally, there is no showing that inal
 become final. The accused,
the prosecutor in the problem is a legal officer of the Bureau of Internal
through counsel, presented
Revenue to whom the conduct of criminal actions are lodged by the Tax Code.
a motion that he be
ALTERNATIVE ANSWER:
allowed to compromise his
No. If the compromise referred to is the civil aspect, the procedure followed is acti
tax liability subject of the
not correct. Compromise for the payment of any internal revenue tax shall be on
information. The
made only by the Commissioner of Internal Revenue or in a proper case the
prosecutor indicated his
Evaluation Board of the BIR (Sec. 204, NIRC). Applying the law to the case at
conformity to the motion. Is
bar, compromise settlement can only be effected by leave of Court.
this procedure correct?
May the Commissioner of
the Internal Revenue
No. A taxpayer who is constituted as withholding agent who has deducted and
compromise the payment
withheld at source the tax on the income payment made by him holds the with
of withholding tax (tax with
taxes as trust funds for the government (Sec. 58[D]) and is obligated to remit Income oldi
2 deducted and withheld at holdi
them to the BIR. The subsequent inability of the withholding agent to Taxatio ng 1998
7 source) where the financial ng
pay/remit the tax withheld is not a ground for compromise because the n age
position of the taxpayer tax
withholding tax is not a tax upon the withholding agent but it is only a nt
demonstrates a clear
procedure for the collection of a tax.
inability to pay the assessed
tax?
A revenue tax is considered delinquent when it is unpaid after the lapse of the
last day prescribed by law for its payment. Likewise, it could also be Income tax deli
2 When is a revenue tax
considered as delinquent Taxatio retur nqu 1998
8 considered delinquent?
where an assessment for deficiency tax has become final and the taxpayer has n n ent
not paid it within the period given in the notice of assessment.
pri
There is prima facie evidence of a false or fraudulent return when the
frau ma
taxpayer has willfully and knowingly filed it with the intent to evade a part or
What constitutes prima Judicial dule faci
2 all of the tax legally due from him (Ungab v. Cusi,, 97 SCRA 877). There must
facie evidence of a false or Remedi nt e 1998
9 appear a design to mislead or deceive on the part of the taxpayer, or at least
fraudulent return? es retur evid
culpable negligence. A mistake not culpable in respect of its value would not
n enc
constitute a false return. (Words and Phrases, Vol. 16, page 173).
e
Is the BIR authorized to The BIR is authorized to issue a warrant of garnishment against the bank Judicial garni ban
3
issue a warrant of account of a taxpayer despite the pendency of protest (Yabes v. Flojo, 15 SCRA Remedi shm k 1998
0
garnishment against the 278). Nowhere in the es ent acco

bank account of a taxpayer
despite the pendency of his
protest against the
assessment with the BIR or
appeal with the Court of
Tax Appeals?
CFB Corporation, a
domestic corporation
engaged in food processing
and other allied activities,
received a letter from the
BIR assessing it for
delinquency income taxes.
CFB filed a letter of protest.
3 One month after, a warrant
1 of distraint and levy was
served on CFB Corporation.
If you were the lawyer
engaged by CFB
Corporation to contest the
assessment made by the
BIR, what steps will you
take to
protect your client?
3 Is assessment necessary
Tax Code is the Commissioner required to rule first on the protest before he
can institute collection proceedings on the tax assessed. The legislative policy
is to give the Commissioner much latitude in the speedy and prompt collection
of taxes because it is in taxation that the Government depends to obtain the
means to carry on its operations (Republic u. Tim Tian Teng Sons, Inc., 16 SCRA
unt
584).
of
ALTERNATIVE ANSWER:
taxp
No, because the assessment has not yet become final, executory and
ayer
demandable. The basic consideration in the collection of taxes is whether the
assessment is final and
unappealable or the decision of the Commissioner is final, executory and
demandable, the BIR has legal basis to collect the tax liability by either
administrative or judicial action.
I shall immediately file a motion for reconsideration of the issuance of the
warrant of distraint and levy and seek from the BIR Commissioner a denial of
the protest "in clear and
unequivocal language." This is so because the issuance of a warrant of
distraint and levy is not considered as a denial by the BIR of the protest filed
by CFB Corporation (CIR v. Union Shipping Corp., 185 SCRA 547).
Within thirty (30) days from receipt of such denial "in clear and unequivocal
language," I shall then file a petition for review with the Court of Tax Appeals. Prot
ALTERNATIVE ANSWER: est
TAX
Within thirty (30) days from receipt of the warrant of distraint and levy, I shall taxp of
REMEDI 1998
file a petition for review with the Court of Tax Appeals with an application for ayer Asse
ES
issuance of a writ of preliminary injunction to enjoin the Bureau of Internal ssm
Revenue from enforcing the warrant. ent
This is the action I shall take because I shall consider the issuance of the
warrant as a final decision of the Commissioner of Internal Revenue which
could be the subject of appeal to the Court of Tax Appeals (Yobes u. Flojo, 15
SCRA 278). The CTA may, however, remand the case to the BIR and require
the Commissioner to specifically rule on the protest. The decision of the
Commissioner, if adverse to my client, would then constitute an appealable
decision.
No. Assessment is not necessary before a taxpayer maybe prosecuted if there Judicial crimi tax 1998
 is a prima facie showing of a willful attempt to evade taxes as in the taxpayer's
before a taxpayer may be failure to declare a specific item of taxable income in his income tax returns
prosecuted for willfully (Ungab v. Cusi 97 SCRA 877). On the contrary, if the taxes alleged to have been nal
attempting in any manner evaded is computed based on reports approved by the BIR there is a Remedi pros evas
2
to evade or defeat any tax presumption of regularity of the previous payment of taxes, so that unless and es ecuti ion
imposed by the Internal until the BIR has made a final determination of what is supposed to be the on
Revenue Code? correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution (CIR v. Fortune Tobacco Corp., GR No. 119322, June 4, 1996).
A Co., a Philippine
Corporation, filed its 1995
Income Tax Return (ITR) on
April 15, 1996 showing a
net loss. On November 10,
1996, it amended its 1995 The right of the BIR to assess the tax has not prescribed. The rule is that
ITR to show more losses. internal revenue taxes shall be assessed within three years after the last day
Colle
After a tax investigation, prescribed by law for the filing of the return. (Section 203, NIRC). However, if
ction
the BIR disallowed certain the return originally filed is amended substantially, the counting of the three- TAX Pres
of
1 deductions claimed by A year period starts from the date the amended return was filed. (CIR v. Phoenix Remedi crip 1999
busi
Co., putting A Co. in a net Assurance Co., Ltd., 14 SCRA 52). There is a substantial amendment in this es tion
ness
income position. As a case because a new return was filed declaring more losses, which can only be
tax
result, on August 5, 1999, done either (1) in reducing gross income or (2) in increasing the items of
the BIR issued a deficiency deductions, claimed.
income assessment against
A Co. A Co. protested the
assessment on the ground
that it has prescribed:
Decide.
A Co., a Philippine App
No. The CTA’s devoid of jurisdiction to entertain appeals from the decision of
corporation, is the owner of Local eal
the City Board of Assessment Appeals. Said decision is instead appealable to
machinery, equipment and Govern Asse to
the Central Board of Assessment Appeals, which under the Local Government
2 fixtures located at its plant ment ssme the 1999
Code, has appellate jurisdiction over decisions of Local Board of Assessment
in Muntinlupa City. The City Taxatio nt Loca
Appeals. (Caltex Phils, foe. v. Central Board of Assessment Appeals, L50466,
Assessor characterized all n l
May 31, 1982).
these properties as real Boa
 properties subject to the
real property tax. A Co.
appealed the matter to the
Muntinlupa Board of
Assessment Appeals. The
Board ruled in favor of the
rd
City. In accordance with RA
Asse
1125 (An Act creating the
ssm
Court of Tax Appeals). A Co.
ent
brought a petition for
review before the CTA to
appeal the decision of the
City Board of Assessment
Appeals. Is the Petition for
Review proper? Explain.
3 A, an individual, sold to B, The first transaction where a lot was sold by A to his brother-in-law for a price Donor’s Sale Sale 1999
his brother-in-law, his lot below its fair market value will not be subject to donor's tax if the lot qualifies Tax of
with a market value of as a capital asset. The transfer for less than adequate and full consideration, shar
P1,000,000 for P600.000. which gives rise to a deemed gift, does not apply to a sale of property subject es
A's cost in the lot is to capital gains tax. (Section 100, NIRC). However, if the lot sold is an ordinary of
P100.000. B is financially asset, the excess of the fair market value over the consideration received shall stoc
capable of buying the lot. be considered as a gift subject to the donor's tax. k&
A also owns X Co., which The sale of shares of stock below the fair market value thereof is subject to sale
has a fast growing business. the donor's tax pursuant to th provisions of Section 100 of the Tax Code. The of
A sold some of his shares of excess of the fair market value over the selling price is a deemed gift. real
stock in X Co. to his key ALTERNATIVE ANSWER: pro
executives in X Co. These The sale of shares of stock below the fair market value will not give rise to the pert
executives are not related imposition of the donor's tax. In determining the gain from the transfer, the y
to A. The selling price is selling price of the shares of stocks shall be the fair market value of the shares
P3,000,000, which is the of stocks transferred. (Section 6, RR No. 2-82). In which case, the reason for
book value of the shares the imposition of the donor's tax on sales for inadequate consideration does
sold but with a market not exist.
value of P5,000,000. A's
cost in the shares sold is
 P1,000,000. The purpose of
A in selling the shares is to
enable his key executives to
acquire apropriety interest
in the business and have a
personal stake in its
business.
Explain if the above
transactions are subject to
donor's tax.
A died, survived by his wife
and three children. The
estate tax was properly
paid and the estate settled
and divided and distributed
among the four heirs. Later, Yes, the BIR is correct. In a case where the estate has been distributed to the
the BIR found out that the heirs, the collection remedies available to the BIR in collecting tax liabilities of Coll
Colle
estate failed to report the an estate may either (1) sue all the heirs and collect from each of them the ecti
ction
income received by the amount of tax proportionate to the inheritance received or (2) by virtue of the on
TAX of
estate during lien created under Section 219, sue only one heir and subject the property he of
4 Remedi real 1999
administration. The BIR received from the estate to the payment of the estate tax. The BIR, therefore, tax
es prop
issued a deficiency income is correct in pursuing the second remedy although this will give rise to the defi
erty
tax assessment plus right of the heir who pays to seek reimbursement from the other heirs. (CIR v. cien
tax
interest, surcharges and Pineda, 21 SCRA 105). In no case, however, can the BIR enforce the tax liability cy
penalties. Since the 3 in excess of the share of the widow in the inheritance.
children are residing
abroad, the BIR sought to
collect the full tax
deficiency only against the
widow. Is the BIR correct?
A Co., a Philippine Yes, the CTA has jurisdiction over the case because this qualifies as an appeal Taxp Prot
TAX
corporation, received an from the Commissioner's decision on disputed assessment. When the ayer' est
5 REMEDI 1999
income tax deficiency Commissioner decided tocollect the tax assessed without first deciding on the s of
ES
assessment from the BIR on taxpayer's protest, the effect of the Commissioner’s action of filing a judicial rem Asse
 May 5, 1995. On May 31,
1995, A Co. filed its protest
with the BIR. On July 30,
1995, A Co. submitted to
the BIR all relevant
supporting documents. The
CIR did not formally rule
onthe protest but on
January 25, 1996, A Co. was
served a summons and a
copy of the complaint for
collection of the tax action for collection is a decision of denial of the protest, in which event the
edie ssm
deficiency filed by the BIR taxpayer may file an appeal with the CTA. (Republic v. Lim Tian Teng & Sons,
s ent
with the Regional Trial Inc., 16 SCRA 584; Dayrit v. Cruz, L-39910, Sept. 26, 1988).
Court (RTC). On February
20, 1996, A Co. brought a
Petition for Review before
the CTA. The BIR
contendedthat the Petition
is premature since there
was no formal denial of the
protest of A Co. and should
therefore be dismissed.
1. Has the CTA jurisdiction
over the case?
The RTC has no jurisdiction over the collection case filed by the BIR. The filing
of an appeal with the CTA has the effect of divesting the RTC of jurisdiction
Taxp Prot
over the collection case. At the moment the taxpayer appeals the case to the
ayer' est
2. Has the RTC jurisdiction Court of Tax Appeals in view of the Commissioner's filing of the collection case TAX
s of
6 over the collection case with the RTC which was considered as a decision of denial, it gives a justifiable REMEDI 1999
rem Asse
filed by the BIR? Explain. basis for the taxpayer to move for dismissal in the RTC of the Government's ES
edie ssm
action to collect the tax liability under dispute. (Yabes v. Flojo, 15 SCRA 278;
s ent
San Juan v. Vasquez, 3 SCRA 92). There is no final, executory and demandable
assessment which can be enforced by the BIR, once a timely appeal is filed.
 A Co., a Philippine
corporation, received an
income tax deficiency
assessment from the BIR on
November 25, 1996. On
December 10, 1996, A Co.
filed its protest with the BIR
On May 20, 1997, the BIR
issued a warrant of distraint The CTA has jurisdiction over the case. The appealable decision is the one
to enforce the assessment. which categorically stated that the Commissioner's action on the disputed
This warrant was served on assessment is final Taxp Prot
A Co. on May 25, 1997. In a and, therefore, the reckoning of the 30-day period to appeal was on June 9, ayer' est
TAX
letter dated June 4, 1997 1999. The filing of the petition for review with the CTA was timely made. The s of
7 REMEDI 1999
and received by A Co. 5 Supreme Court has ruled that the CIR must categorically state that his action rem Asse
ES
days later, the CIR formally on a disputed assessment is final; otherwise, the period to appeal will not edie ssm
denied A Co.'s protest commence to run. That final action cannot be implied from the mere issuance s ent
stating that it constitutes of a warrant "of distraint and levy. (CIR v. Union Shipping Corporation, 185
his final decision on the SCRA 547).
matter. On July 6, 1997, A
Co. filed a Petition for
Review with the CTA. The
BIR moved to dismiss the
Petition on the ground that
the CTA has no
jurisdiction over the case.
Decide.
A Co., a Philippine
BIR
corporation, is a big I will advise A Co. and B Co. that the BIR is justified only in getting information BIR
Audi
manufacturer of consumer from the former but not from the latter. The BIR is authorized to obtain Audi
Income t or
goods and has several information from otherpersons other than those whose internal revenue tax t or
8 Taxatio Inve 1999
suppliers of raw materials. liability is subject to audit or investigation. However, this power shall not be Inve
n stig
The BIR suspects that some construed as granting the Commissioner the authority to inquire into bank stiga
atio
of the suppliers are not deposits. (Section 5. NIRC). tion
n
properly reporting their
 income on their sales to A
Co. The CIR therefore:
1) Issued an access letter to
A Co. to furnish the BIR
information on sales and
payments to its suppliers.
2) Issued an access letter to
a bank (CX Bank) to furnish
the BIR on deposits of some
suppliers of A Co. on the
alleged ground that the
suppliers are committing
tax evasion.
A Co., X Bank and the
suppliers have not been
issued by the BIR letter of
authority to examine. A Co.
and X Bank believe that the
BIR is on a "fishing
expedition" and come to
you for counsel. What is
your advice?
HK Co. is a Hong Kong P Co. should not subject the payments of the purchase price to withholding Sale
corporation not doing tax. While the seller is a non-resident foreign corporation which is not of
business in the Philippines. normally required to file returns inthe Philippines, therefore, ordinarily all its shar
It holds 40% of the shares income earned from Philippine sources is taxed via the withholding tax Capit es
of A Co., a Philippine system, this is not the procedure availing with respect to sales of shares of al of
Income
company, while the 60% is stock. The capital gains tax on the sale of shares of stock of a domestic Gain stoc
9 Taxatio 1999
owned by P Co., a Filipino- corporation is always required to be paid through a capital gains tax return Tax k&
n
owned Philippine filed. The saleof the shares of stock of the Indonesian Corporation is not Retu sale
corporation. HK Co. also subject to income tax under our jurisdiction because the income derived there rn of
owns 100% of the shares of from is considered as a foreign-sourced income. real
B Co., an Indonesian ALTERNATIVE ANSWER:Yes, but only on the shares of stocks of A Co. and only pro
company which has a duly on the portion of the purchase price, which constitutes capital gains. Under pert
 licensed Philippine branch.
Due to worldwide
restructuring of the HK Co.
group, HK Co. decided to
sell all its shares in A and B
Cos. The negotiations for
the buy-out and the signing
of the Agreement of Sale the Tax Code of 1997, the capital gains tax imposed under Section 28(B)(5)(c)
were all done in the is collectible via the withholding of tax at source pursuant to Section 57 of the
Philippines. The Agreement same Code.
provides that the purchase (Note: The bar candidate might have relied on the provision of the Tax Code of
price will be paid to HK Co's 1997 which provides that the capital gains tax is imposed as withholding taxes y
bank account in the U. S. (Section 57, NIRC). This procedure is impractical and, therefore, not followed
and that little to A and B in practice because the buyer/ withholding agent will not be in a position to
Cos. Shares will pass from determine how much income is realized by the seller from the sale. For this
HK Co. to P Co. in HK where reason, any of the foregoing suggested answers should be given full credit).
the stock certificates will be
delivered. P Co. seeks your
advice as to whether or not
it will subject the payments
of purchase price to
WithholdingTax. Explain
your advice.
1 A Co. is the wholly owned A Co., the withholding agent of the non-resident foreign corporation is TAX Taxp over 1999
0 subsidiary of B Co., a entitled to claim the refund of excess withholding tax paid on the income of REMEDI ayer' with
nonresident German said corporation in the Philippines. Being a withholding agent, it is the one ES s oldi
company. A Co. has a held liable for any violation of the withholding tax law should such a violation rem ng
trademark licensing occur. In the same vein, it should be allowed to claim a refund in case of edie clai
agreement with B Co. On overwitholding. (CIR v. Wander Phils. Inc., GR No. 68378, April 15, 1988, 160 s m
Feb. 10, 1995, A Co. SCRA 573; CIR v. Procter & Gamble PMC, 2O4 SCRA 377). for
remitted to B Co. royalties refu
of P 10,000,000, which A nd
Co. subjected to a
withholding tax of 25% or
 P2,500,000. Upon advice of
counsel, A Co. realized that
the proper withholding tax
rate is 10%. On March 20,
1996, A Co. filed a claim for
refund of P2.500.000 with
the BIR. The BIR denied the
claim on Nov. 15, 1996. On
Nov. 28, 1996, A Co. filed a
petition for review with the
CTA. The BIR attacked the
capacity of A Co., as agent,
to bring the refund case.
Decide the issue.
1 HK Co., is a Hong Kong I will advise A Co. to withhold and remit the withholding tax on the dividends. Income Divid with 1999
1 company, which has a duly While the general rule is that a foreign corporation is the same juridical entity Taxatio ends oldi
licensed Philippine branch, as its branch office inthe Philippines, when, however, the corporation n ng
engaged in trading activities transacts business in the Philippines directly and independently of its branch, tax
in the Philippines. HK Co. the taxpayer would be the foreign corporation itself and subject to the
also invested directly in dividend tax similarly imposed on non-resident foreign corporation. The
40% of the shares of stock dividends attributable to the Home Office would not qualify as dividends
of A Co., a Philippine earned by a resident foreign corporation, which is exempt from tax.
corporation. These shares (Marubeni Corporation v. Commissioner, GR No. 76573, September 14, 1989).
are booked in the Head
Office of HK Co. and are not
reflected as assets of the
Philippine branch. In 1998,
ACo. declared dividends to
its stockholders. Before
remitting the dividends to
HK Co., A Co. seeks your
advice as to whether it will
subject the remittance to
WT. No need to discuss WT
 rates, if applicable. Focus
your discussion on what is
the issue.
1 A Co., a Philippine
2 corporation, has two
divisions — manufacturing
and construction. Due to
the economic situation, it
had to close its construction
division and layoff the
employees in that division.
A Co. has a retirement plan
approved by the BIR, which
requires a minimum of 50
years of age and 10 years of
service in the same
employer at the time of
retirement.
There are 2 groups of
employees to be laid off:
a) Employees who are at
least 50 years of age and
has at 10 years of service at
the time of termination of
employment.
b) Employees who do no
meet either the age or
length of service A Co. plans
to give the following:
For category (A) employees
- the benefits under the BIR
approved plan plus an ex
For category A employees, all the benefits received on account of their Income Exe Reti 1999
separation are not subject to income tax, hence no withholding tax shall be Taxatio mpti rem
imposed. The benefits received under the BIR-approved plan upon meeting n ons ent
the service requirement and age requirement are explicitly excluded from Ben
gross income. The ex gratia payment also qualifies as an exclusion from gross efits
income being in the nature of benefit received on account of separation due
to causes beyond the employees' control. (Section 32(B), NIRC). The cash
equivalent of unused vacation and sick leave credits qualifies as part of
separation benefits excluded from gross income (CIR v. Court of Appeals, GR
No. 96O16, October 17, 1991).
For category B employees, all the benefits received by them will also be
exempt from income tax, hence not subject to withholding tax. These are
benefits received on account of
separation due to causes beyond the employees' control, which are
specifically excluded from gross income. (Section 32(B), NIRC).
ALTERNATIVE ANSWER;
All of the payments are not subject to income tax and should not also be
subject to withholding tax. The employees were laid off, hence separated for a
cause beyond their control. Consequently, the amounts to be paid by reason
of such involuntary separation are excluded from gross income, irrespective of
whether the employee at the time of separation has rendered less than ten
years of service and/or is below fifty years of age.
(Section 32(B), NIRC).
 gratia payment of one
month of every year of
service.

For category (B) employees

- one month for every year
of service. For both
categories, the cash
equivalent of unused
vacation and sick leave
credits.

A Co. seeks your advice as

to whether or not it will
subject any of these
payments to WT. Explain
your advice.
1 A Co., a Philippine The salaries and allowances received by P are not subject to Philippine income Income Pers Non 1999
3 corporation, has an tax. P qualifies as a nonresident citizen because he leaves the Philippines for Taxatio onal -
executive (P) who is a employment requiring him to be physically present abroad most of the time n inco resi
Filipino citizen. A Co. has a during the taxable year. (Section 22(E), NIRC). A nonresident citizen is taxable me den
subsidiary in Hong Kong (HK only on income derived from Philippine sources. (Section 23, NIRC). The tax t
Co.) and will assign P for an salaries and allowances received from being employed abroad are incomes citiz
indefinite period to work from without because these are compensation forservices rendered outside of ens
full time for HK Co. P will the Philippines. (Section 42, NIRC).
bring his family to reside in However, P is taxable on rental income for the lease of his Philippine
HK and will lease out his residence because this is an income derived from within, the leased property
residence in the Philippines. being located in the Philippines.(Section 42, NIRC).
The salary of P will be
shouldered 50% by A Co.
while the other 50% plus
housing, cost of living and
educational allowances
 ofP's dependents will be
shouldered by HK Co. A Co.
will credit the 50% of P's
salary to P's Philippine bank
account. P will sign the
contract of employment in
the Philippines. P will also
be receiving rental income
for the lease of his
Philippine residence.
Are these salaries,
allowances and rentals
subject to the Philippine
income tax?
Ded
Explain if the following ucti
items are deductible from ble
gross income for income 1) Interest on loans used to acquire capital equipment or machinery is a Ite
tax purposes. Disregard deductible item from gross income. The law gives the taxpayer the option to Income Ded ms
1
who is the person claiming claim as a deduction or treat as capital expenditure interest incurred to Taxatio uctio fro 1999
4
the expense. acquire property used in trade, business or exercise of a profession. (Section n ns m
1) Interest on loans used to 34(B) (3), NIRC). Gro
acquire capital equipment ss
or machinery. Inco
me
2) Depreciation for goodwill is not allowed as deduction from gross income. Ded
While intangibles maybe allowed to be depreciated or amortized, it is only ucti
allowed to those ble
intangibles whose use in the business or trade is definitely limited in duration. Income Ded Ite
1
2) Depreciation of goodwill. (Basilan Estates, Inc. v, CIR, 21 SCRA 17). Such is not the case with goodwill. Taxatio uctio ms 1999
5
n ns fro
m
ALTERNATIVE ANSWER: Gro
Depreciation of goodwill is allowed as a deduction from gross income if the ss
 goodwill is acquired through capital outlay and is known from experience to
be of value to the business for only a limited period. (Section 107, Revenue
Regulations No. 2). In such case, the goodwill is allowed to be amortized over
its useful life to allow the deduction of the Inco
current portion of the expense from gross income, thereby paving the way for me
a proper matching of costs against revenues which is an essential feature of
the income tax
system.
Explain if the following non
items are deductible from -
1 RESERVE FOR BAD DEBTS are not allowed as deduction from gross income. Gros
gross income for income Income ded
1 Bad debts must be charged off during the taxable year to be allowed as s
tax purposes. Disregard Taxatio ucti 1999
6 deduction from gross income. The mere setting up of reserves will not give Inco
who is the person claiming n ble
rise to any deduction. (Section 34(E). NTRC). me
the deduction. item
1. Reserves for bad debts. s
2 WORTHLESS SECURITIES, which are ordinary assets, are not allowed as non
deduction from gross income because the loss is not realized. However, if -
Gros
these worthless securities are Income ded
1 s
2. Worthless securities capital assets, the owner is considered to have incurred a capital loss as of the Taxatio ucti 1999
7 Inco
last day of the taxable year and, therefore, deductible to the extent of capital n ble
me
gains. (Section 34(D)(4), NIRC). This deduction, however, is not allowed to a item
bank or trust company. (Section 34(E)(2), NIRC). s
A Co., a Philippine
corporation, issued
preferred shares of stock
ded
with the following features:
The dividends are not deductible from gross income. Preferred shares shall be ucti
Gros
considered capital regardless of the conditions under which such shares are Income ble
1 1) Non-voting; s
issued and, therefore, dividends paid thereon are not considered 'interest' Taxatio Gro 1999
8 2) Preferred and cumulative Inco
which are allowed to be deducted from the gross income of the corporation. n ss
dividends at the rate of 10% me
(Revenue Memorandum Circular No. 17-71, July 12, 1971). Inco
per annum, whether or not
me
in any period the amount is
covered by earnings or
projects;
3) In the event of
dissolution of the issuer,
holders of preferred stock
shall be paid in full or
ratably as the assets of the
issuer may permit before
any distribution shall be
made to common
stockholders; and

4) The issuer has the option

to redeem the preferred
stock.

A Co. declared dividends

on the preferred stock and
claimed the dividends as
interests deductible from
its gross Income for income
tax purposes. The BIR
disallowed the deduction. A
Co. maintains that the
preferred shares with their
features are really debt and
therefore the dividends are
realty interests. Decide.
 The power to tax is an inherent power of the sovereign which is exercised
through the legislature, to impose burdens upon subjects and objects within
its Jurisdiction for the purpose of raising revenues to carry out the legitimate Con
objects of government. The underlying basis for its exercise is governmental General Doct stitu
necessity for without it no government can exist nor endure. Accordingly, it Principl rine tion
1 has the broadest scope of all the powers of government because inthe es of of al 2000
absence of limitations, it is considered as unlimited, plenary, comprehensive Taxatio Taxa Limi
and supreme. The two limitations on the power of taxation are the inherent n tion tati
and constitutional limitations which are intended to prevent abuse on the on
exercise of the otherwise plenary and unlimited power. It is the Court's role to
see to it that the exercise of the power does not transgress these limitations.
2 Mr. Pascual's income from There is tax avoidance. Mr. Pascual has exploited a fully permissive alternative General Doct Tax 2000
leasing his property reaches method to reduce his income tax by transferring part of his rental income to a Principl rine Avoi
the tax exempt entity through a donation of one-half of the income producing es of of dan
maximum rate of tax under property. The donation is likewise exempt from the donor's tax. The donation Taxatio Taxa ce
the law. He donated one- is the legal means employed to transfer the incidence of income tax on the n tion vs.
half of rental income. Tax
his said property to a non- Evas
stock, non-profit ion
educational
institution whose income
and assets are actually,
directly
and exclusively used for
educational purposes, and
therefore
qualified for tax exemption
under Article XIV, Section 4
(3)
of the Constitution and
Section 30 (h) of the Tax
Code.
Having thus transferred a
portion of his said asset,
 Mr.
Pascual succeeded in
paying a lesser tax on the
rental
income derived from his
property. Is there tax
avoidance or
tax evasion? Explain. (2%)
(2000) An Executive Order
was issued pursuant to law,
granting No. Equal protection of the law clause is subject to reasonable classification.
tax and duty incentives only Classification, to be valid, must (1) rest on substantial distinctions, (2) be
to businesses and residents germane to the purpose of the law, (3) not be limited to existing conditions
within the "secured area" only, (4) apply equally to all members of the same class. Equ
of the Subic Economic al
General Doct
Special There are substantial differences between big investors being enticed to the Prot
Principl rine
Zone, and denying said "secured area" and the business operators outside that are in accord with the ecti
3 es of of 2000
incentives to those who live equal protection clause that does not require territorial uniformity of laws. on
Taxatio Taxa
within The classification applies equally to all the resident individuals and businesses of
n tion
the Zone but outside such within the "secured area". The residents, being in like circumstances to the
"secured area". Is the contributing directly to the achievement of the end purpose of the law, are Law
constitutional right to equal not categorized further. Instead, they are similarly treated, both in privileges
protection of the law granted and obligations required. (Tiu, et al, v. Court of 4npeals, et al, G.R. No.
violated 127410, January 20, 1999)
by the Executive Order?
Explain. (3%)
Article VI, Section 28 (3) of Exe
Impo
the 1987 Philippine mp
This exemption applies only to property taxes. What is exempted is not the Real sitio
Constitutionprovides that tion
institution itself but the lands, buildings and improvements actually, directly Propert n of
charitable institutions, fro
4 and exclusively used for religious, charitable and educational purposes. y Real 2000
churches and personagesor m
(Commissioner of Internal Revenue v. Court of Appeals, et al, G.R. No. 124043, Taxatio Prop
covenants appurtenant Real
October 14, 1998) n erty
thereto, mosques, non- Pro
Tax
profitcemeteries and all pert
 lands, buildings and
improvementsactually,
directly and exclusively
used for religious,
y
charitable or
Tax
educationalpurposes shall
be exempt from taxation. a)
To what kindof tax does this
exemption apply? (2%)
Article VI, Section 28 (3) of
the 1987 Philippine
Constitution
provides that charitable
institutions, churches and
personages
or covenants appurtenant Exe
thereto, mosques, non- mp
Impo
profit tion
Yes, because tax exemptions are strictly construed against the taxpayer. There Real sitio
cemeteries and all lands, fro
must be evidence to show that the taxpayer has complied with the Propert n of
buildings and m
5 requirements for exemption. Furthermore, real property taxation is based on y Real 2000
improvements Real
use and not on ownership, hence the same rule must also be applied for real Taxatio Prop
actually, directly and Pro
property tax exemptions. n erty
exclusively used for pert
Tax
religious, charitable or y
educational Tax
purposes shall be exempt
from taxation. b) Is proof of
actual use necessary for tax
exemption
purposes under the
Constitution? (3%)
Among the taxes imposed Income tax, estate and donor's tax are considered as direct taxes. On the General Kind Acc
6 by the Bureau of Internal other hand, value-added tax, excise tax, other percentage taxes, and Principl s of ordi 2000
Revenue are income tax, documentary stamp tax are indirect es of Taxe ng
 estate and donor's tax,
taxes. to
value-added tax, excise tax,
bur
other percentage taxes, and
DIRECT TAXES are demanded from the very person who, as intended, should den
documentary stamp tax. Taxatio
pay the tax which he cannot shift to another; while an INDIRECT TAX is s or
Classify these taxes into n
demanded in the first instance from one person with the expectation that he inci
direct and indirect taxes,
can shift the burden to someone else, not as a tax but as a part of the den
and differentiate direct
purchase price. ce
from Indirect taxes. (5%)
A domestic corporation
failed to withhold and remit
the tax
on income received from
Philippine sources by a Taxa
nonresident foreign tion Tax
corporation. In addition to No. There is no showing that the compromise penalty was imposed by the of pay
Income
the civil penalties provided Commissioner of Internal Revenue with the agreement and conformity of the resid er
7 Taxatio 2000
for under the Tax Code, a taxpayer. (Wonder Mechanical Engineering Corporation u. Court of Tax ent Rem
n
compromise penalty was Appeals, et. al., 64 SCRA 555). corp edie
imposed for violation of the orati s
withholding tax provisions. on
May the Commissioner of
Internal Revenue legally
enforce the collection of
compromise penalty? (5%)
8 To start a business of his (a) It depends. An employee retiring under a company's qualified and private Income Gros Wit 2000
own, Mr. Mario de retirement plan can only be exempt from income tax on his retirement Taxatio s hhol
Guzmanopted for an early benefits if the following requisites are met: (1) that the retiring employee n Inco ding
retirement from a private must have been in service of the same employer for at least ten (10) years; (2) me Tax
company afterten (10) that he is not less than 50 years of age at the time of retirement; and(3) the
years of service. Pursuant benefit is availed of only once. In the instant case, there is no mention
to the company'squalified whether the employee has likewise complied with requisites number (2) and
and approved private (3).
retirement benefit plan,
hewas paid his retirement
 benefit which was
subjected towithholding
tax. Is the employer correct
in withholding thetax?
Explain. (2%)
To start a business of his
own, Mr. Mario de Guzman The conditions to be met in order that retirement benefits received by officials
opted for an early and employees of private firms are excluded from gross income and exempt
retirement from a private from taxation are as follows:
company after 2. Under Republic Act No. 4917 (those received under a reasonable private
ten (10) years of service. benefit plan):
Pursuant to the company's a. the retiring official or employee must have been in service of the same
qualified and approved employer for at least ten (10) years; Gro
private retirement benefit b. that he is not less than fifty (50) years of age at the time of retirement; and ss
Gros
plan, he c. that the benefit is availed of only once. Income Inco
s
9 was paid his retirement Taxatio me 2000
Inco
benefit which was 3. Under Republic Act No. 7641 (those received from employers without any n Exe
me
subjected to retirement plan): a) Those received under existing collective bargaining mp
withholding tax. Under agreement and other agreements are exempt; and tion
what conditions are b) In the absence of retirement plan or agreement providing for retirement
retirement benefits benefits the benefits are excluded from gross income and exempt from
received by officials and income tax if:
employees of private firms i. retiring employee must have served at least five(5) years; and
excluded from ii. that he is not less than sixty (60) years of age but not more than sixty five
gross income and exempt (65).
from taxation? (3%)
1 Mr. Javier is a non-resident Mr. Javier is exempt from income tax on his monthly GSIS pension (Sec. 32(B) Income Gros Wit 2000
0 senior citizen. He receives a (6)(f), NIRC of 1997) but not on the interest income that might accrue on the Taxatio s h
monthly pension from the pensions deposited with PNB which are subject to final withholding tax. n Inco resp
GSIS which he deposits with Consequently, since Mr. Javier's sole taxable income would have been me ect
the PNB-Makati Branch. Is subjected to a final withholding tax, he is not required anymore to file an to
he exempt from income tax income tax return. (Sec. 51 (A) (2) (c). Ibid]. non
and therefore not required -
to file an income tax resi
 return? den
(5%) t
Mr. Cortez is a non-resident
Mr. Cortez being a non-resident alien individual who has stayed for an
alien based in Hong
aggregated period of more than 180 days during the calendar year 1999, shall Tax
Kong.During the calendar
for that taxable year be deemed to be a non-resident alien doing business in atio
year 1999, he came to the Taxa
the Philippines.Considering the above, Mr. Cortez shall be subject to an n
Philippinesseveral times tion
income tax in the same manner as an individual citizen and a resident alien non
and stayed in the country Income of
1 individual, on taxable income received from all sources within the Philippines. -
for an aggregatedperiod of Taxatio non- 2000
1 [Sec. 25 (A) (1), NIRC of 1997]Thus, he is allowed to avail of the itemized resi
more than 180 days. How n resid
deductions including the personal and additional exemptions but subject to den
will Mr. Cortez betaxed on ent
the rule on reciprocity on the personal exemptions. (Sec. 34 (A) to (J) and (M) t
his income derived from alien
in relation to Sec. 25 (A) (1), Ibid, Sec. 35 (D), Ibid.]NOTE: It is suggested that alie
sources within
full credit should be given if the examinee's answer only cover the first two n
thePhilippines and from
paragraphs.
abroad? (5%)
Under Article XIV, Section 4 No. The interest income on bank deposits and yields from deposit substitutes
(3) of the 1987 Philippine are not automatically exempt from taxation. There must be a showing that the
Constitution, all revenues incomes are included in the school's annual information return and duly
and assets of non-stock, audited financial statements together with:
nonprofit 1 Certifications from depository banks as to the amount of interest income
educational institutions, earned from passive investments not subject to the 20% final withholding tax;
used actually, directly and 2 Certification of actual, direct and exclusive utilization of said income for
exclusively for educational educational purposes; General Doct
Tax
purposes, are exempt from 3 Board resolution on proposed project to be funded out of the money Principl rine
1 Exe
taxes deposited in banks or placed in money market placements (Finance es of of 2000
2 mp
and duties. Are income Department Order No. 149-95 issued November 24, 1995), which must be Taxatio Taxa
tion
derived from dormitories, used actually, directly and exclusively for educational purposes. n tion
canteens
and bookstores as well as The income derived from dormitories, canteens and bookstores are not also
interest income on bank automatically exempt from taxation. There is still the requirement for
deposits evidence to show actual, direct and exclusive use for educational purposes. It
and yields from deposit is to be noted that the 1987 Philippine Constitution does not distinguish with
substitutes automatically respect to the source or origin of the income. The distinction is with respect to
exempt the use which should be actual, direct and exclusive for educational purposes.
 Consequently, the provisions of Sec. 30 of the NIRC of 1997, that a non-stock
and nonprofit educational institution is exempt from taxation only "in respect
from taxation? Explain.
to income received by them as such" could not affect the constitutional tax
(5%)
exemption. Where the Constitution does not distinguish with respect to
source or origin, the Tax Code should not make distinctions.
Exe
mp
tion
s:
Non
General Doct
TAXABLE INCOME means the pertinent items of gross income specified in the -
Principl rine
1 What is meant by taxable Tax Code, less the deductions and/or personal and additional exemptions, if Pro
es of of 2000
3 income? (2%) any, authorized for such types of income by the Tax Code or other special fit
Taxatio Taxa
laws. (Sec. 31, NIRC of 1997) Edu
n tion
cati
onal
Insti
tuti
ons
Jose Miranda, a young artist
and designer, received a
prize Excl
of P100,000.00 for winning No. It is not includable in the gross income of the recipient because the same usio
in the on-the-spot peace is subject to a final tax of 20%, the amount thereof being in excess of P10.000 ns
Gros
poster (Sec. 24(B){1), NIRC of 1997). The prize constitutes a taxable income because it Income fro
1 s
contest sponsored by a was made primarily in recognition of artistic achievement which he won due Taxatio m 2000
4 Inco
local Lions Club. Shall the to an action on his part to enter the contest. [Sec. 32 (B) (7) (c), NIRC of 1997] n Gro
me
reward Since it is an on-the-spot contest, it is evident that he must have joined the ss
be included in the gross contest in order to earn the prize or award. Inco
income of the recipient for me
tax
purposes? Explain. (3%)
1 On June 16, 1997, the Yes. There was no claim for refund or credit that has been duly filed with the Tax Taxp Clai
2000
5 Bureau of Internal Revenue Commissioner of Internal Revenue which is required before a suit or Remedi ayer' ms
(BIR) issued against the proceeding can be filed in any court (Sec. 229. NIRC of 1997). The denial of the es s for
Estate of Jose de la Cruz a claim by the Commissioner is the one which will vest the Court of Tax Appeals rem Refu
notice of deficiency estate jurisdiction over the refund case should the taxpayer decide to appeal on time edie nd
tax assessment, inclusive of s
surcharge, interest and
compromise penalty. The
Executor of the Estate of
Jose de la Cruz (Executor)
filed a timely protest
against the assessment and
requested for waiver of the
surcharge, interest and
penalty. The protest was
denied by the
Commissioner of Internal
Revenue (Commissioner)
with finality on September
13, 1997. Consequently, the
Executor was made to pay
the deficiency assessment
on October 10, 1997. The
following day, the Executor
filed a Petition with the
Court of Tax Appeals (CTA)
praying for the refund of
the surcharge, interest and
compromise penalty. The
CTA took cognizance of the
case and ordered
the Commissioner to make
a refund. The
Commissioner filed a
Petition for Review with the
Court of Appeals assailing
 the jurisdiction of the CTA
and the Order to make
refund to the Estate on the
ground that no claim for
refund was filed with the
BIR.
A. Is the stand of the
Commissioner correct?
Reason. (2%)
1 On June 16, 1997, the The filing of an administrative claim for refund with the BIR is necessary in Tax Taxp Clai 2000
6 Bureau of Internal Revenue order: 1) To afford the Commissioner an opportunity to consider the claim and Remedi ayer' ms
(BIR) issued against the to have a chance to correct the errors of subordinate officers (Gonzales v. CTA, es s for
Estate of Jose de la Cruz a et al, 14 SCRA 79); and 2) To notify the Government that such taxes have been rem Refu
notice of deficiency estate questioned and the notice should be borne in mind in estimating the revenue edie nd
tax assessment, inclusive of available for expenditures. (Bermejo v. Collector, G.R. No. L 3028. July 29, s
surcharge, interest and 1950)
compromise penalty. The
Executor of the Estate of
Jose de la Cruz (Executor)
filed a timely protest
against the assessment and
requested for waiver of the
surcharge, interest and
penalty. The protest was
denied by the
Commissioner of Internal
Revenue (Commissioner)
with finality on September
13, 1997. Consequently,
theExecutor was made to
pay the deficiency
assessment on October 10,
1997. The following day,
the Executor filed a Petition
 with the Court of Tax
Appeals (CTA) praying for
the refund of the surcharge,
interest and compromise
penalty. The CTA took
cognizance of the case and
orderedthe Commissioner
to make a refund. The
Commissioner filed a
Petition for Review with the
Court of Appeals assailing
the jurisdiction of the CTA
and the Order to make
refund to the Estate on the
ground that no claim for
refund was filed with the
BIR.Why is the filing of an
administrative claim with
the BIR necessary? (3%)
1 Last July 12, 2000, Mr. & The conditions are: Real Capit Tax 2000
7 Mrs. Peter Camacho sold 1. The proceeds are fully utilized in acquiring or constructing a new principal Propert al atio
their residence within eighteen (18) calendar months from the sale or disposition of y Gain n of
principal residence situated the principal residence or eighteen (18) months from July 12, 2000.1 The Taxatio s Tax Capi
in Tandang Sora, Quezon historical cost or adjusted basis of the real property n tal
City sold or disposed shall be carried over to the new principal residence built or Gain
for Ten Million Pesos acquired. s
(P10,000,000.00) with the 2 The Commissioner of Internal Revenue must have been informed by Mr. & Tax
intention Mrs. Peter Camacho within thirty (30) days from the date of sale or disposition
of using the proceeds to on July 12, 2000 through a prescribed return of their intention to avail of the
acquire or construct a new tax exemption.
principal residence in 3 That the said exemption can only be availed of once every ten (10) years.
Aurora Hills, Baguio City. 4 If there is no full utilization of the proceeds of sale or disposition, the portion
What of the gain presumed to have been realized from the sale or disposition shall
conditions must be met in be subject to capital gains tax [Sec. 24 (D) (2), NIRC of 1997]
 order that the capital gains
presumed to have been
realized from such sale may
not be
subject to capital gains tax?
(5%)
Mr. Reyes, a Filipino citizen
engaged in the real estate
business, filed his 1994
income tax return on March
20, 1995. On December 15,
1995, he left the Philippines
as an immigrant to join his
family in Canada. After
theinvestigation of said
return/the BIR issued a
Taxp
notice of deficiency income No. Prescription has not set in because the period of limitations for the Bureau Pres
ayer'
tax assessment on April 15, of Internal Revenue to issue an assessment was SUSPENDED during the time Tax crip
1 s
1998. Mr. Reyes returned that Mr. Reyes was out of the Philippines or from the period December 15, Remedi tive 2000
8 rem
to the Philippines as a 1995 up to December 8, 1998. (Sec. 223 in relation to Sec. 203, both of the es peri
edie
balikbayan on December 8, NIRC of 1997) od
s
1998. Finding his name to
be in the list ofdelinquent
taxpayers, he filed a protest
against the assessment on
the ground that he did not
receive the notice of
assessment and that the
assessment had prescribed.
Will the protest prosper?
Explain. (5%)
Discuss the rule on situs of The value of the gross estate of a non-resident decedent who is a Filipino Situs Non
1 Estate
taxation with respect to the citizen at the time of his death shall be determined by including the value at of - 2000
9 Tax
imposition of the estate tax the time of his death of all property, real or personal, tangible or intangible, Taxa resi

on property left behind by a
non-resident decedent.
(2%)
Mr. Felix de la Cruz, a
bachelor resident citizen,
suffered from a heart attack
while on a business trip to
the USA. He died intestate
on June 15, 2000 in New
York City, leaving behind
real properties situated in
New York; his family home
in Valle Verde, Pasig City;
an office condominium
inMakati City; shares of
2 Estate
stocks in San Miguel
0 Tax
Corporation; cash in bank;
and personal belongings.
The decedent is heavily
insured with Insular Life. He
had no known debts at the
time of his death. As the
sole heir and appointed
Administrator, how would
you determine the gross
estate ofthe decedent?
What deductions may be
claimed by the estate and
wherever situated to the extent of the interest therein of the decedent at the
time of his death [Sec. 85 (A), NIRC of 1997). These properties shall have a
situs of taxation in the Philippines hence subject to Philippine estate taxes. On den
the other hand, in the case of a non-resident decedent who at the time of his t
death was not a citizen of the Philippines, only that part of the entire gross tion dec
estate which is situated in the Philippines to the extent of the interest therein ede
of the decedent at the time of his death shall be included in his taxable estate. nt
Provided, that, with respect to intangible personal property, we apply the rule
of reciprocity. (Ibid)
The gross estate shall be determined by including the value at the time of his
death all of the properties mentioned, to the extent of the interest he had at
the time of his death because he is a Filipino citizen. [Sec. 85 (A), NIRC of
1997] With respect to the life insurance proceeds, the amount includible in
the gross estate for Philippine tax purposeswould be to the extent of the
amount receivable by the estate of the deceased, his executor, or
administrator, under policies taken out by decedent upon his own life,
irrespective of whether or not the insured retained thepower of revocation, or
to the extent of the amount receivable by any beneficiary designated in the
policy of insurance, except when it is expressly stipulated that the designation Gro
of the beneficiary is irrevocable. [Sec. 85 (E) NIRC of 1997]The DEDUCTIONS ss
Gros
that may be claimed by the estate are: 1) The actual funeral expenses or in an Esta
s
amount equal to five percent (5%) of the gross estate, whichever is lower, but te 2000
Estat
in no case to exceed two hundred thousand pesos (P200.000.00). [Sec. 86 (A) Ded
e
(1) (a). NIRC of 1997] 2) The judicial expenses in the testate or intestate ucti
proceedings.(Sec. 86(A)(1)3) The value of the decedent's family home located ons
in Valle Verde, Pasig City in an amount not exceeding one million pesos
(P1,000,000.00), and upon presentation of a certification of the barangay
captain of the locality that the same have been the decedent's family home.
[Sec. 86 (A (4),Ibid]4) The standard deduction of P1,000,000. (Sec. 86(A)(5) 5)
Medical expenses incurred within one year from death in an amount not
exceeding P500,000.(Sec. 86(A)(6) The ESTATE TAX RETURN shall be filed
within six(6) months from the decedent's death (Sec. 90 (B), NIRC of 1997],
provided that the Commissioner of Internal Revenue shall have authority to
grant in meritorious cases, a reasonable extension not exceeding thirty (30)
 days for filing the return (Sec. 90 (c), Ibid] Except in cases where the
Commissioner of Internal Revenue otherwise permits, the estate tax return
when and where shall the
shall be filed with an authorized agent bank, or Revenue District Officer,
return be filed and estate
Collection Officer, or duly authorized Treasurer of Pasig City, the City in which
tax paid? (3%)
the decedent Mr. de la Cruz was domiciled at the time of his death. [Sec. 90
(D). NIRC of 1997]
Under what conditions may
Pow
the Commissioner of
ers
Internal The Commissioner of Internal Revenue may be authorized to compromise the Auth
Judicial and
2 Revenue be authorized to: payment of any internal revenue tax where: 1) A reasonable doubt as to the ority
Remedi Duti 2000
1 A. Compromise the validity of the claim against the taxpayer exists; or 2) the financial position of of
es es
payment of any internal the taxpayer demonstrates a clear inability to pay the assessed tax. CIR
of
revenue
BIR
tax? (2%)
BIR: Compromise; Pow
Conditions (2000)Under ers
The Commissioner of Internal Revenue may abate or cancel a tax liability Auth
what conditions may the Judicial and
2 when: 1) The tax or any portion thereof appears to be unjustly or excessively ority
Commissioner of Internal Remedi Duti 2000
2 assessed; or 2) The administration andcollection costs involved do not justify of
Revenue be authorized to: es es
the collection of the amount due. [Sec. 204 (B), NIRC of 1997] CIR
B. Abate or cancel a tax of
liability? (3%) BIR
2 A taxpayer is suspected not No. as this would be violative of Republic Act No. 1405, the Bank Deposits Tax Othe Ban 2000
3 to have declared his correct Secrecy Law. The Commissioner of Internal Revenue or his duly authorized Remedi r k
gross income in his return representative may be allowed to inquire or look into the bank deposits of a es relat Secr
filed for 1997. The taxpayer in the following cases: a) For the purpose of ed ecy
examiner requested the determining the gross estate of a decedent; b) Where the taxpayer has filed matt Viol
Commissioner to authorize an application for ers atio
him to inquire into the bank compromise of his tax liability by reason of financial incapacity to pay such tax n
deposits of the taxpayer so liability. (Sec. 6 (F), NIRC of 1997] c) Where the taxpayer has signed a waiver
that he could proceed with authorizing the Commissioner or his duly authorized representatives to
the net worth method of Inquire into the bank deposits.
investigation to establish
fraud. May the examiner be
allowed to look into the
 taxpayer's bank deposits?
In what cases may the
Commissioner or his duly
authorized representative
be allowed to inquire or
look into the bank deposits
of a
taxpayer? (5%)
The legal remedies of an aggrieved taxpayer under the Tax Code, both at the
administrative and judicial levels, may be classified into those for assessment,
collection and refund.The procedures for the ADMINISTRATIVE REMEDIES for
ASSESSMENT are as follows:a. After receipt of the Pre-Assessment Notice, he
must within fifteen (15) days from receipt explain why no additional taxes
should be assessed against him. b. If the Commissioner of Internal Revenue
issues an assessment notice, the taxpayer must administratively protest or
dispute the assessment by filing a motion for reconsideration or
reinvestigation within thirty (30) days from receipt of the notice of
assessment. (4th par.. Sec. 228, NIRC of 1997)c. Within sixty (60) days from
Describe separately the
filing of the protest, the taxpayer shall submit all relevant supporting Taxp
procedures on the legal
documents.The JUDICIAL REMEDIES of an aggrieved taxpayer relative to an ayer'
remediesunder the Tax Tax Rem
2 ASSESSMENT NOTICE are as follows:Answers to the BAR: Taxation 1994-2006 s
Code available to an Remedi edie 2000
4 (Arranged by Topics) In both cases the taxpayer must apply with the Court of rem
aggrieved taxpayer bothat es s
Tax Appeals for the Issuance of an Injunctive writ to enjoin the Bureau of edie
the administrative and
Internal Revenue from collecting the disputed tax during the pendency of the s
judicial levels. (5%)
proceedings.NOTE: A 2004 Amendment - The decision of the division of CTA is
in turn appeallable within fifteen (15) days to the CTA en banc. The decision of
the CTA en banc is directly appeallable to the Supreme Court on question of
law on certiorari.The employment by the Bureau of Internal Revenue of any of
the Administrative Remedies for the collection of the tax like distraint, levy,
etc. may be administratively appealed by the taxpayer to the Commissioner
whose decision is appealable to the Court of Tax Appeals under other matter
arising under the provisions of the National Internal Revenue Code.The judicial
appeals starts with the Court of Tax Appeals, and continues in the same
manner as shown above. Should the Bureau of Internal Revenue decide to
 utilize its Judicial tax remedies for collecting the taxes by means of an ordinary
suit filed with the regular courts for the collection of a sum of money, the
taxpayer could oppose the same going up the ladder of judicial processes from
the Municipal Trial Court (as the case may be) to the Regional Trial Court, to
the Court of Appeals, thence to the Supreme Court. The remedies of an
aggrieved taxpayer on a claim for refund is to appeal the adverse decision of
the Commissioner to the CTA in the same manner outlined above.
Limi
tati
ons
Give at least two (2) Two (2) fundamental principles governing real property taxation are: 1) The on
fundamental principles appraisal must be at the current and fair market value; and 2) Classification for Prini the
governing real property assessment must be on thebasis of actual use. (Sec. 198, Local Government Real ples taxi
taxation, which are Code) ALTERNATIVE ANSWER:The examinee should be given credit if Propert and ng
2
limitations on the taxing he chooses the above two (2) or any two (2) of those enumerated below: 1) y Limit pow 2000
5
power of local governments Assessment must be on the basis of uniform classification; 2) Appraisal, Taxatio ation erof
insofar as the levying of the assessment, levy and collection shall not be let to private persons; and 3) n of loca
realty tax is concerned. Appraisal and assessment must be equitable. (Sec. 198, Local Government LGUs l
(2%) Code) gov
ern
men
t
On the basis of a warrant Motion granted. The Court of Tax Appeals has jurisdiction only over decisions
of seizure and detention of the Commissioner of Customs in cases involving seizures, detention or
issued release of property affected. (Sec. 7, R.A. No. 1125). There is no decision yet of
by the Collector of Customs the Commissioner which is subject to review by the Court of Tax Appeals.
Juris Juris
for the purpose of
Judicial dicti dicti
2 enforcing ALTERNATIVE ANSWER:
Remedi on on 2000
6 the Tariff and Customs Motion granted. The Court of Tax Appeals has no jurisdiction because there is
es of of
Laws, assorted brands of no decision rendered by the Commissioner of Customs on the seizure and
CTA CTA
cigarettes forfeiture case. The taxpayer should have appealed the decision rendered by
said to have been illegally the Collector within fifteen (15) days from receipt of the decision to the
imported into the Commissioner of Customs. The Commissioner’s adverse decision would then
Philippines be the subject of an appeal to the Court of Tax Appeals.
 were seized from a store
where they were openly
offered for
sale. Dissatisfied with the
decision rendered after
hearing by
the Collector of Customs on
the confiscation of the
articles,
the importer filed a petition
for review with the Court of
Tax Appeals. The Collector
moved to dismiss the
petition
for lack of Jurisdiction. Rule
on the motion. (2%)
2 On the basis of a warrant No. The legislators intended to divest the Regional Trial Courts of the Judicial Juris Juris 2000
7 of seizure and detention jurisdiction to replevin a property which is a subject of seizure and forfeiture Remedi dicti dicti
issued by the Collector of proceedings for violation of the Tariff and Customs Code otherwise, actions es on on
Customs for the purpose of for forfeiture of property for violation of the Customs laws could easily be of of
enforcing the Tariff and undermined by the simple device of replevin. (De la Fuente v. De Veyra, et. al, CTA CTA
Customs Laws, assorted 120 SCRA 455)
brands of cigarettes said to There should be no unnecessary hindrance on the government's drive to
have been illegally prevent smuggling and other frauds upon the Customs. Furthermore, the
imported into the Regional Trial Court do not have Jurisdiction in order to render effective and
Philippines were seized efficient the collection of Import and export duties due the State, which
from a store where they enables the government to carry out the functions It has been Instituted to
were openly offered for perform. (Jao, et al, Court of Appeals, et al, and companion case, 249 SCRA 35,
sale. Dissatisfied with the 43)
decision rendered after
hearing by the Collector of
Customs on the
confiscation of the articles,
the importer filed a petition
 for review with the Court of
Tax Appeals. The Collector
moved to dismiss the
petition
for lack of Jurisdiction. b)
Under the same facts, could
the importer file an action
in the Regional Trial Court
for replevin on the ground
that the
articles are being
wrongfully detained by the
Collector of Customs since
the importation was not
illegal and therefore
exempt from seizure?
Explain. (3%)

No. Set-off is available only if both obligations are liquidated and demandable.
Liquidated debts are those where the exact amounts have already been determined. In
the instant case, the claim of the taxpayer for VAT refund is still pending and the amount Set-
Com
May a taxpayer who has has still to be determined. A fortiori, the liquidated obligation of the taxpayer to the Off
pending claims for VAT input government can not, therefore, be set-off against the unliquidated claim which the pens
Value- or
credit or refund, set-off said taxpayer conceived to exist in his favor. (Philex Mining Corp. v. CIR, GR No. 125704, ation
1 claims against his other tax August 29, 1998).ALTERNATIVE ANSWER:No. Taxes and claims for refund cannot be Added com 2001
of
liabilities? Explain your answer. the subject of set-off for the simple reason that the government and thetaxpayer are not Tax pen
(5%) creditors and debtors of each other. There is a material distinction between a tax and a
Taxe
sati
claim for refund. Claims for refunds just like debts are due from the government in its s
on
corporate capacity, while taxes are due tothe government in its sovereign capacity.
(Philex Mining Corp. v. CIR, GR No. 125704, August 29, 1998).

Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising Tax
General Doct
from nonpayment of taxes. amn
It is a general pardon given to all taxpayers. It applies only to past tax periods, hence of Principl rine
Distinguish a tax amnesty from esty
2 a tax exemption. (3%) retroactive application. es of in 2001
(People v. Costonedo, G.R. No. L-46881, 1988). and
Taxatio Taxa
Tax exemption is an immunity from the civil liability only. It is an immunity or privilege, a exe
freedom from a charge or n tion
mp
 burden to which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 ME 365). It is
generally prospective in tion
application.
General Colle
Yes. The collection of taxes may be barred by prescription.
May the collection of taxes be The prescriptive periods for collection of taxes are governed by the tax law imposing the Principl ction Pres
3 barred by prescription? tax. However, if the tax law es of of crip 2001
Explain your answer. (3%) does not provide for prescription, the right of the government to collect taxes becomes Taxatio Taxe tion
imprescriptible.
n s
Aut
Judic hori
As a general rule, the courts have no authority to enjoin the collection of revenue taxes. Jusicial ial ty of
May the courts enjoin the
(Sec. 218, NIRC). However, the Court of Tax Appeals is empowered to enjoin the
4 collection of revenue taxes? Remedi Proc Ordi 2001
collection of taxes through administrative remedies when collection could jeopardize the
Explain your answer. (2%) es edur nary
interest of the government or taxpayer. (Section 11, RA 1125).
es Cou
rts
Taxa
A domestic corporation is required to file income tax returns four (4) times for income tion
earned during a single
How often does a domestic of
taxable year. Quarterly returns are required to be filed for the first three quarters where Income Tax
corporation file income tax Dom
the corporation shall declare
5 return for income earned Taxatio Pay 2001
its quarterly summary of gross income and deductions on a cumulative basis. (Section estic
during a single taxable year? n able
75, NIRC). Then, a final
Explain the process. (3%) Corp
adjustment return is required to be filed covering the total taxable income for the entire
year, calendar or fiscal. (Section 76, NIRC). orati
on
Taxa
tion
How often does a domestic The reason for this procedure is to ensure the timeliness of collection to meet the
corporation file income tax budgetary needs of the government. Likewise, it is designed to ease the burden on the of
Income Tax
return for income earned taxpayer by providing it with an installment paymentscheme, rather than requiring the Dom
6 during a single taxable year? payment of the tax on a lump-sum basis after the end of the year.ALTERNATIVE Taxatio Pay 2001
estic
What is the reason for such ANSWER:The reason for the quarterly filing of tax returns is to allow partial collection of n able
procedure? (2%) the tax before the end of thetaxable year and also to improve the liquidity of government
Corp
orati
on
Taxpayers whose only income No more. Gross compensation income earners are now allowed at least an item of Allo Ded
consists of salaries and wages deduction in the form of Income
wabl ucti
7 from their employers have long premium payments on health and/or hospitalization insurance in an amount not Taxatio 2001
been complaining that they are exceeding P2,400 per annum e on
n
not allowed to deduct any item [Section 34(M)]. This deduction is allowed if the aggregate family income do not exceed Ded on
 from their gross income for
purposes of computing their
net taxable income. Gro
With the passage of the P250.000 and by the spouse, in case of married individual, who claims additional uctio ss
Comprehensive Tax Reform personal exemption for dependents. ns Inco
Act of 1997, is this complaint
still valid? Explain your answer.
me
(5%)

Income subject to final tax refers to an income wherein the tax due is fully collected
Tax
through the withholding tax atio
What is meant by income system. Under this procedure, the payor of the income withholds the tax and remits it to With n of
subject to "final tax"? Give at the government as a final Income
holdi resi
8 least two examples of income settlement of the income tax due on said income. The recipient is no longer required to Taxatio 2001
of resident individuals that is include the item of ng den
n
subject to the final tax. (3%) income subjected to "final tax" as part of his gross income in his income tax returns. Tax t
Examples of income subject to citiz
final tax are dividend income, interest from bank deposits, royalties, etc.
en
EXCLUSIONS from gross income refer to a flow of wealth to the taxpayer which are not
treated as part of gross Excl
income, for purposes of computing the taxpayer’s taxable income, due to the following usio
reasons: (1) It is exempted by
the fundamental law; (2) It is exempted by statute; and (3) It does not come within the
n vs.
definition of income. (Section 61, Ded
Distinguish "Exclusion from RR No. 2). DEDUCTIONS from gross income, on the other hand, are the amounts, Gros ucti
Gross Income" from which the law allows to be Income
s on
9 "Deductions From Gross deducted from gross income in order to arrive at net income. Taxatio 2001
Income". Give an example of Exclusions pertain to the computation of gross income, while deductions pertain to the Inco fro
n
each. (2%) computation of net income. me m
Exclusions are something received or earned by the taxpayer which do not form part of Gro
gross income while deductions are something spent or paid in earning gross income.
Example of an exclusion from gross income is proceeds of life insurance received by ss
the beneficiary upon the death of the insured which is not an income or 13th month pay Inco
of an employee not exceeding P30.000 which is an income not recognized for tax me
purposes. Example of a deduction is business rental.

What do you think is the
reason why cash dividends,
when received by a resident
citizen or alien from a domestic
1 corporation, are taxed only at
the final tax of 10% and not at
0 ng
the progressive tax rate
schedule under Section 24(A)
ofthe Tax Code? Explain your
answer. (5%)
The reason for imposing final withholding tax rather than the progressive tax schedule
on cash dividends received bya resident citizen or alien from a domestic corporation, is
to ensure the collection of income tax on said income. If wesubject the dividend to the Wit
progressive tax rate, which can only be done through the filing of income tax returns,
thereis no assurance that the taxpayer will declare the income, especially when there hhol
are other items of gross incomeearned during the year. It would be extremely difficult for ding
the BIR to monitor compliance considering the hugenumber of stockholders. By shifting tax
the responsibility to remit the tax to the corporation, it is very easy to checkcompliance
because there are fewer withholding agents compared to the number of income With of
Income
recipients.Likewise, the imposition of a final withholding tax will make the tax available holdi Do
to the government at an earlier time.Finally, the final withholding tax will be a sure Taxatio 2001
mes
revenue to the government unlike when the dividend is treated as areturnable income n
where the recipient thereof who is in a tax loss position is given the chance to offset
Tax tic
such lossagainst dividend income thereby depriving the government of the tax on said Cor
dividend income. [Note: It is recommended that any of the foregoing answers can be por
given full credit because the question involves a policy issue which can only be found in atio
the deliberations of Congress.]ALTERNATIVE ANSWER:The reason why cash
dividends received by a resident citizen or alien from a domestic corporation are n
subjectedto the final withholding tax of 10% and not at the progressive rate tax schedule
is to lessen the impact of asecond layer of tax on the same income.

A, a doctor by profession, sold

in the year 2000 a parcel of
land which he bought as a form
of investment in 1990 for Php 1
million. The land was sold to B,
his colleague, at a time when Nat
the real estate prices had gone ure
No. The 6% capital gains tax on sale of a real property held as capital asset is imposed Capit
down and so the land was sold Income of
1 on the income presumed to have been realized from the sale which is the fair market al
only for Php 800,000 which
value or selling price thereof, whichever is higher. (Section 24(D), NIRC). Actual gain is Taxatio Capi 2001
1 was then the fair gain
not required for the imposition of the tax but it is the gain by fiction of law which is n tal
market value of the land. He
taxable. tax
used the proceeds to finance Gain
his trip to the United States. He
Tax
claims that he should not be
made to pay the 6% final tax
because he did not have any
actual gain on the sale. Is his
contention correct? Why? (5%)
What is the rationale of the law The imposition of the Minimum Corporate Income Tax (MCIT) is designed to forestall Cor Cor
in imposing what is known as the prevailing practice of Income
1 pora por
the Minimum Corporate corporations of over claiming deductions in order to reduce their income tax payments. Taxatio 2001
2 Income tax on Domestic The filing of income tax returns showing a tax loss every year goes against the business te ate
n
Corporations? (3%) motive which impelled the stockholders to form the Inco Inco
 me
tax
corporation. This is the reason why domestic corporations (and resident foreign on
corporations) after the recovery Do
period of four years from the time they commence business operations, they become me mes
liable to the MCIT whenever this
tax imposed at 2% of gross income exceeds the normal corporate income tax imposed tax tic
on net income. (Sponsorship Speech, Chairman of Senate Ways and Means Cor
Committee). por
atio
ns

Cor
No. The minimum corporate income tax is a proxy for the normal corporate income tax, por
not the regular corporateincome tax paid by a corporation. For instance, a proprietary
educational institution may be subject to aregular corporate income tax of 10% ate
(depending on its dominant income), but it is exempt from the imposition ofMCIT Inco
because the latter is not intended to substitute special tax rates. So is with PEZA Cor me
Is a corporation which is enterprises,CDA enterprises etc.[Note: If what is meant by regular income tax is the
exempted from the minimum 32% tax rate imposed on taxable income of corporations, theanswer would be in the pora tax
Income
1 corporate income tax affirmative, because domestic corporations and resident foreign corporations are te on
automatically exempted from eitherliable for the 2% of gross income (MCIT) or 32% of net income (the normal Taxatio 2001
3 Inco Do
the regular corporate income corporate income tax) whichever ishigher.]ALTERNATIVE ANSWER:No. A corporation n
tax? Explain your answer. (2%) which is exempted from the minimum corporate income tax is not automatically
me mes
exempted from the regular corporate income tax. The reason for this is that MCIT is tax ticC
imposed only beginning on the fourth taxable yearimmediately following the year in orp
which such corporation commenced its business operations. Thus, a corporation may ora
be exempt from MCIT because it is only on its third year of operations following its
commencement of businessoperations. tion
s

Distinguish Allowable The distinction between allowable deductions and personal Allo Allo
Deductions from Personal exemptions are as follows: Income wabl wab
1 Exemptions. Give an example a. As to amount — Allowable deductions generally refer to actual expenses incurred in
of an allowable deduction and the pursuit Taxatio e le 2001
4
another example for personal of trade, business or practice of profession while Answers to the BAR: Taxation 1994- n Ded ded
exemption. (5%) 2006 (Arranged by Topics) uctio ucti
 personal exemptions are arbitrary amounts allowed by law. on
As to nature — Allowable deductions constitute business expenses while personal
exemptions pertain to personal
qnd
expenses. pers
As to purpose — Deductions are allowed to enable the taxpayer to recoup his cost of ns onal
doing business while personal exemptions are allowed to cover personal, family and exw
living expenses.
As to claimants — Allowable deductions can be claimed by all taxpayers, corporate or mp
otherwise, while personal exemptions can be claimed only by individual taxpayers. tion
X was hired by Y to watch over
V’s fishponds with a salary of
Php 10,000.00. To enable him
to perform his duties well, he
Cov
was also provided a small hut, erag
No. X is neither a managerial nor a supervisory employee. Only managerial or Fring
which he could use as his e of
supervisory employees are entitled to a Income e
1 residence in the middle of the Frin
fringe benefit subject to the fringe benefits tax. Even assuming that he is a managerial
fishponds. Is the fair market Taxatio Bene 2001
5 or supervisory employee, ge
value of the use of the small n fit
the small hut is provided for the convenience of the employer, hence does not constitute
hut by X a "fringe benefit" that ben
a taxable fringe benefit. (Section 33, NERC). Tax
is subject to the 32% tax efit
imposed by Section 33 of the
National Internal Revenue tax
Code? Explain your answer.
(5%)
In order to facilitate the
processing of its application for
a license from a government
Ded
office, Corporation A found it Since the amount of Phpl00.000 constitutes a bribe, it is notallowed as a deduction from ucti
necessary to pay the amount of gross income of Corporation A,(Section 34(A)(l)(c), NIRC). However, to the recipient Gros on
Php 100,000 as a bribe to the government official, the same constitutes a taxable income. All income from legal or Income
1 s on
approving official. Is the Php illegal sources are taxable absent any clear provision of law exempting the same. This Taxatio 2001
6 100,000 deductible from the is the reason why gross income had been defined to include income from whatever Inco Gro
n
gross income of Corporation source derived.(Section 32(A), NIRC). Illegally acquired income constitutes realized me ss
A? On the other hand, is the income under the claim of right doctrine (Rutkinv. US, 343 US 130). Inco
Php 100,000 taxable income of
the approving official? Explain me
your answers. (5%)
 Yes. An individual deriving compensation concurrently from two or more employers at
any time during the taxable
year shall file an income tax return (Sec. 51(A)(2)(b), NIRC.)
In the year 2000, X worked part
time as a waitress in a
ALTERNATIVE ANSWER: Sour
restaurant in Mega Mall from
It depends. An individual with pure compensation income is not required to file an
8:00 a.m. to 4:00 p.m. and then ces
income tax returns when she meets
as a cashier in a 24-hour
the following conditions; (1) the total gross compensation income does not exceed of
convenience store in her
Php60,000.00 and Income Inco inco
1 neighborhood. The total
(2) the income tax has been correctly withheld, meaning the tax withheld is equal to the
income of X for the year from Taxatio me me 2001
7 tax due. (Section 5 l(A](2)(b), NIRC).
the two employers does not n Tax subj
There is no mention in the problem of the amount of personal and additional personal
exceed her total personal and
exemption to quantify how ect
additional exemptions for the
much is that compensation income that did not exceed the personal and additional
year 2000. Was she required to to
personal exemptions. There is no,
file an income tax return last tax
mention, either, of whether or not the employers withheld taxes and that the amount
April? Explain your answer.
withheld is equal to the tax due.
(5%)
Whether or not she will be required to file an income tax return last April 15 on the 2000
income will depend on her
compliance with the requirements of the law.

Wit
hhol
Is a non-resident alien who is
not engaged in trade or
ding
business or in the exercise of No. The income tax on all income derived from Philippine sources by a non-resident tax
profession in the Philippines alien who is not engaged in trade With of
but who derived rental income or business in the Philippines is withheld by the lessee as a Final Withholding Tax. Income
1 holdi non
from the Philippines required to (Section 57(A), NIRC). The government can not require persons outside of its territorial Taxatio 2001
8 file an income tax return on jurisdiction to file a return; for this reason, the income tax on income derived from within ng -
n
April of the year following his must be collected through the withholding tax system and thus relieve the recipient of Tax resi
receipt of said income? If not, the income the duty to file income tax returns. (Section 51, NIRC). den
why not?
Explain your answer. (5%) t
alie
n
A, aged 90 years and suffering Yes. When the donor makes his will within a short time of, or simultaneously with, the
Inclu Don
from incurable cancer, on making of gifts, the gifts are
August 1, 2001 wrote a will considered as having been made in contemplation of death. (Roces v. Posadas, 58 Phil. sion atio
1 Estate
and, on the same day, made 108). Obviously, the intention of the donor in making the inter-vivos gifts is to avoid the on n 2001
9 several inter-vivos gifts to his imposition of the estate tax and since the donees are likewise his forced heirs who are Tax
gros mor
children. Ten days later, he called upon to inherit, it will create a presumption juris tantum that said donations
died. In your opinion, are the were made mortis causa, hence, the properties donated shall be included as part of A's s tis
 inter-vivos gifts considered
transfers in contemplation of
death for purposes of estat caus
gross estate.
determining properties to be e a
included in his gross estate?
Explain your answer. (5%)
On the first anniversary of the
death of Y, his heirs hosted a Allo
sumptuous dinner for his wab
doctors, nurses, and others
who attended to Y during his le
No. This expense will not fall under any of the allowable deductions from gross estate.
last illness. The cost of the ded
Whether viewed in thecontext of either funeral expenses or medical expenses, the same Gros
dinner amounted to Php ucti
2 will not qualify as a deduction. Funeral expenses may include medical expenses of the Estate s
50,000.00. Compared to his
last illness but not expenses incurred after burial nor expenses incurred to on 2001
0 gross estate, the Php Tax Estat
commemorate the death anniversary. (De Guzman V. De Guzman, 83 SCRA 256). on
50,000.00 did not exceed five
Medical expenses, on the otherhand, are allowed only if incurred by the decedent within e
percent of the estate. Is the gros
one year prior to his death. (Section 86(A)(6), NIRC).
said cost of the dinner to
s
commemorate his one year
death anniversary deductible esta
from his gross estate? Explain te
your answer. (5%)
Your bachelor client, a Filipino
residing in Quezon City, wants
to give his sister a gift of Php
I would advice him to split the donation. Giving the Php200,000 as a one-time donation
200,000.00. He seeks your
would mean that it will Don
advice, for purposes of
be subject to a higher tax bracket under the graduated tax structure thereby
reducing if not eliminating the attio
necessitating the payment of donor's tax. On the other hand, splitting the donation into
2 donor's tax on the gift, on Donor's Don n to
two equal amounts of Php 100,000 given on two different years will
whether it is better for him to 2001
1 totally relieve the donor from the donor’s tax because the first Phpl00.000 donation in Tax ation a
give all of the Php 200,000.00
the graduated brackets is
on Christmas 2001 or to give sibli
exempt. (Section 99, NIRC). While the donor’s tax is computed on the cumulative
Php 100,000.00 on ng
donations, the aggregation of all donations made by a donor is allowed only over one
Christmas2001 and the other
calendar year.
Php 100,000.00 on January 1,
2002. Please explain your
advice. (5%)
Flexi Flexi
The term "flexible tariff clause "refers to the authority given to the President to adjust Tariff ble ble
What do you understand by the
2 term "flexible tariff clause" as tariff rates under+C128 Section 401 of the Tariff and Customs Code, which is the and Tari Tari
enabling law that made effective the delegation of the taxing power to the President 2001
2 used in the Tariff and Customs under the Constitution. [Note: It is suggested that if the examinee cites the entire Custom ff ff
Code? (5%)
provision of Sec. 401 of the Tariff &, Customs Code, he should also be given full credit.] Duties Clau Clau
se se
 Congress, after much public
hearing and consultations with
various sectors of society,
came to the conclusion that it
will be good for the country to Limi
have only one system of No. The law centralizing the imposition and collection of all taxes in the national tati
taxation by centralizing the government would contravene the General
imposition and collection of all Constitution which mandates that: . . . "Each local government unit shall have the power Pow ons
Principl
2 taxes in the national to create their own sources of revenue and to levy taxes, fees, and charges subject to er of of
government. such guidelines and limitations as Congress may provide consistent with the basic es of 2001
3 Taxa the
Accordingly, it is thinking of policy of local autonomy." It is clear that Congress can only give the guidelines and Taxatio
passing a law that would limitations on the exercise by the local governments of the power to tax but what was
tion Con
n
abolish the taxing power of all granted by the fundamental lawcannot be withdrawn by Congress. gres
local government units. In your s
opinion, would such a law be
valid under the present
Constitution? Explain your
answer. (5%)
Under Article 415 of the Civil
Code, in order for machinery
and equipment to be
considered real property, the
pieces must be placed by the
owner of the land and, in
addition, must tend to directly
meet the needs of the industry Real
or works carried on by the Real
owner. Oil companies install Yes. The properties are considered as necessary fixtures of the gasoline station, without Pro
Prop
underground tanks in the which the gasoline station would be useless. Machinery and equipment installed by the pert
gasoline stations located on lessee of leased land is not real property for purposes of execution of a final judgment erty
Real y
2 land leased by the oil only. They are considered as real property for real property tax purposes as "other taxa
companies from the owners of improvements to affixed or attached real property under the Assessment Law and the Propert taxa 2001
4 tion
the land where the gasoline Real Property Tax Code. y Tax tion
stations [are] located. Are (Caltex v. Central Board of Assessment Appeals, 114 SCRA
unde
und
those underground tanks, 296 [1982]). r
er
which were not placed there by LGC
the owner of the land but which LGC
were instead placed there by
the lessee of the land,
considered real property for
purposes
of real property taxation under
the local Government Code?
Explain. (8%)
 Mr. Sebastian is a Filipino
seaman employed by a
Norwegian company which is
engaged exclusively
ininternational shipping. He
and his wife, who manages
their business, filed a joint
income tax return for 1997 on The income of Mr. Sebastian as a seaman is considered as income of a non-resident
March 15, 1998. After an audit citizen derived from withoutthe Philippines. The total gross income, in US dollars (or if in Inco
of the return, the BIR issued on other foreign currency, its dollar equivalent) fromwithout shall be declared by him for me
April 20, 2001 a deficiency income tax purposes using a separate income tax return which will not includehis of a
income tax assessment for the income from business derived within (to be covered by another return). He is entitled to
sum of P250.000.00, inclusive deduct from his dollargross income a personal exemption of $4,500 and foreign national non
Income
of interest and penalty. For income taxes paid to arrive at his adjusted incomeduring the year. His adjusted income Inco -
1 failure of Mr. and Mrs. will be subject to the graduated tax rates of 1% to 3%. (Sec. 21 (b), Tax Code Taxatio 2002
me resi
Sebastian to pay the tax within of1986[PD 1158], as amended by PD 1994).[Note: The bar candidates are not expected n
the period stated in the notice to be familiar with tax history. Considering that this is already the fourth year of
den
of assessment, the BIR issued implementation of the Tax Code of 1997, bar candidates were taught and prepared to t
on August 19, 2001 warrants of answer questions based on the present law. It is therefore requested that the examiner alie
distraint and levy to enforce be more lenient in checking the answers to this question. Perhaps, an answer based on n
collection of the tax.A. What is the present law be given full credit.]
the rule of income taxation with
respect to Mr. Sebastian's
income in 1997 as a seaman
on board the Norwegian vessel
engaged in international
shipping? Explain your answer.
(2%)
2 Mr. Sebastian is a Filipino I will raise the defense of prescription. The right of the BIR to assess prescribes after Tax Taxp Pres 2002
seaman employed by a three years counted from the
Norwegian company which is last day prescribed by law for the filing of the income tax returns when the said return is
Remedi ayer' crip
engaged exclusively in filed on time. (Section 203, es s tion
international shipping. He and NIRC). The last day for filing the 1997 income tax return is April 15, 1998. Since the Rem
his wife, who manages their assessment was issued only on edie
business, filed a joint income April 20, 2001, the BIR's right to assess has already prescribed.
tax return for 1997 on March s
15, 1998. After an audit of the
return, the BIR issued on April
20, 2001 a deficiency income
tax assessment for the sum of
P250.000.00, inclusive of
interest and penalty. For failure
of Mr. and Mrs. Sebastian to
pay the tax within the period
stated in the notice of
 assessment, the BIR issued on
August 19, 2001 warrants of
distraint and levy to enforce
collection of the tax.If you are
the lawyer of Mr. and Mrs.
Sebastian, what possible
defense or defenses will you
raise in behalf of your clients
against the action of the BIR in
enforcing collection of the tax
by the summary remedies of
warrants of distraints and levy?
Explain your answer. (3%)
Mr. Castro inherited from his
father, who died on June 10,
1994, several pieces of real
property in Metro Manila. The
estate tax return was filed and
the estate tax due in the
amount of P250.000.00 was
paid on December 06, 1994.
The Tax Fraud Division of the
BIR investigated the case on
the basis of confidential
information given by Mr.
The protest should be resolved against Mr. Castro. What was filed is a fraudulent return
Santos Asse Pres
making the prescriptive Estate
on January 06, 1998 that the
3 period for assessment ten (10) years from discovery of the fraud (Section 222, NIRC). ssme crip 2002
return filed by Mr. Castro was Tax
Accordingly, the assessment was issued within that prescriptive period to make an nt tion
fraudulent and that he failed to
assessment based on a fraudulent return.
declare all properties left by
his father with intent to evade
payment of the correct tax. As
a result, a deficiency estate tax
assessment for P1,250,000.00,
inclusive of 50% surcharge for
fraud, interest and penalty, was
issued against him on January
10, 2001. Mr. Castro protested
the assessment on the ground
of prescription. Decide Mr.
Castro's protest. (2%)
Mr. Castro inherited from his The legal requirements that must be complied by Mr. Santos to entitle him to reward are Asse Pres
father, who died on June as follows: 1) He shouldvoluntarily file a confidential information under oath with the Law Estate
4 10,1994, several pieces of real Division of the Bureau of Internal Revenue alleging therein the specific violations ssme crip 2002
Tax
property in Metro Manila. constituting fraud; 2) The information must not yet be in the possession of the Bureau of nt tion
 Theestate tax return was filed
and the estate tax due in
theamount of P250.000.00 was
paid on December 06,
1994.The Tax Fraud Division of
the BIR investigated the case
onthe basis of confidential
information given by Mr.
Santoson January 06, 1998
that the return filed by Mr.
Castro wasfraudulent and that
he failed to declare all Internal Revenue, or refer to a case already pending or previously investigated by the
properties left by his father with Bureau of Internal Revenue; 3) Mr. Santos should not be a government employee or a
intent to evade payment of the relative of a government employee within the sixth degree of consanguinity; and 4) The
correct tax. As a result, a information must result to collections of revenues and/or fines and penalties. (Sec.
deficiency estate tax 282,NIRC)
assessment for P1,250,000.00,
inclusive of 50% surcharge for
fraud, interest and penalty, was
issued against him on January
10, 2001. Mr. Castro protested
the assessment on the ground
of prescription. What legal
requirement/s must Mr.
Santoscomply with so that he
can claim his reward? Explain.
(3%)
5 The MKB-Phils. is a BOI- Yes. The income of MKB-Phils. under the licensing agreement with banks shall be Income With Roy 2002
registered domestic considered as royalty subject
corporation to the 20% final withholding tax. The term royalty is broad enough to include technical
Taxatio holdi alty
licensed by the MKB of the advice, assistance or services n ng
United Kingdom to distribute, rendered in connection with technical management or administration of any scientific, Tax
support and use in the industrial or commercial
Philippines its computer undertaking, venture, project or scheme. (Sec. 42(4)(f), NIRC). Accordingly, the
software consultancy and technical services
systems, including basic and rendered by MKB-Phils, which are incidental to the distribution, support and use of the
related materials for banks. computer systems of MKB-UK are taxable as royalty.
The MKB-Phils. provides
consultancy and technical
services
incidental thereto by entering
into licensing agreements with
banks. Under such
agreements, the MKB-Phils.
will not
 acquire any proprietary rights
in the licensed systems. The
MKB-Phils. pays royalty to the
MKB-UK, net of 15%
withholding tax prescribed by
the RP-UK Tax Treaty.
Is the income of the MKB-Phils.
under the licensing
agreement with banks
considered royalty subject to
20%
final withholding tax? Why? If
not, what kind of tax will its
income be subject to? Explain.
(5%)
6 TY Corporation filed its final The motion to dismiss should not be granted. It is only when the assessment has Judicial Pres Pres 2002
adjusted income tax return become final and unappealablethat the 5-year period to file a criminal action
for1993 on April 12, 1994 commen+C135ces to run (Tupaz v. Ulop, 316 SCRA 118 [1999]). Thepre-assessment
Remedi cripti crip
showing a net loss from notice issued on March 30, 1996 is not a final assessment which is enforceable by the es ve tive
operations.After investigation, BIR. It is theissuance of the final notice and demand letter dated April 15, 1997 and the Peri Peri
the BIR issued a pre- failure of the taxpayer to protest within 30 days from receipt thereof that made the od od
assessment noticeon March assessment final and unappealable. The earliest date that the assessment has become
30, 1996. A final notice and final is May 16, 1997 and since the criminal charge was instituted on January 10, 2002,
demand letter datedApril 15, the same was timely filed.
1997 was issued, personally
delivered to andreceived by the
company's chief accountant.
For willfulrefusal and failure of
TY Corporation to pay the
tax,warrants of distraint and
levy on its properties were
issuedand served upon it. On
January 10, 2002, a criminal
chargefor violation of the Tax
Code was instituted in the
RegionalTrial Court with the
approval of the
Commissioner.The company
moved to dismiss the criminal
complaint onthe ground that an
act for violation of any
provision of theTax Code
prescribes after five (5) years
and, in this case,the period
commenced to run on March
 30, 1996 when thepre-
assessment was issued. How
will you resolve themotion?
Explain your answer. (5%)
The taxpayer must comply with the following procedures in claiming a refund of, or tax
credit for, taxes and penalties
which he alleges to have been erroneously, illegally or excessively assessed or
collected:
What must a taxpayer do in Taxp
2. He should file a written claim for refund with the Commissioner within two years after
order to claim a refund of,
the date of payment of the tax or penalty (Sec. 204, NIRC); ayer'
or tax credit for, taxes and Tax
penalties which he alleges to s Refu
7 1 The claim filed must state a categorical demand for reimbursement (Bermejo v. Remedi 2002
have been erroneously, Rem nd
Collector, 87 Phil. 96 [1950]). es
illegally or excessively
2 The suit or proceeding for recovery must be commenced in court within two years edie
assessed or
from date of payment of the tax or penalty regardless of any supervening event that will s
collected? (3%)
arise after payment (Sec. 229, NIRC).
[Note: If the answer given is only number 1, it is suggested that the same shall be given
full credit considering that this is the only requirement for the Commissioner to acquire
jurisdiction over the claim.]
Yes. When the taxpayer files a return which on its face shows an overpayment of the
tax and the option to refund/
claim a tax credit was chosen by the taxpayer, the Commissioner shall grant the refund Adm
Can the Commissioner grant a or tax credit without the need for a written claim. This is so, because a return filed Tax inistr
refund or tax credit even showing an overpayment shall be considered as a written claim for credit or refund. Refu
8 without a written claim for it? (Sees. 76 and 204, NIRC). Remedi ative 2002
nd
(2%) Moreover, the law provides that the Commissioner may, even without a written claim es Rem
therefor, refund or credit any tax where on the face of the return upon which payment edy
was made, such payment appears clearly to have been erroneously paid. (Sec. 229,
NIRC)
XYZ Foundation is a non-stock,
non-profit association
dulyorganized for religious,
charitable and social The exemption contemplated in the Constitution covers real estate tax on real properties
welfarepurposes. Last January actually, directly andexclusively used for religious, charitable or social welfare purposes.
General Doct
3, 2000 it sold a portion of its It does not cover exemption from the impositionof the income tax which is within the Tax
lotused for religious purposes context of Section 30 of the Tax Code. As a rule, non-stock nonprofitcorporations Principl rine
Exe
9 and utilized the entire organized for religious, charitable or social welfare purposes are exempt from income es of in 2002
proceedsfor the construction of tax on theirincome received by them as such. However, if these religious, charitable or mp
Taxatio Taxa
a building to house its free Day social welfare corporations deriveincome from their properties or any of their activities tion
andNight Care Center for conducted for profit, the income tax shall be imposed onsaid items of income n tion
children of single parents. In irrespective of their disposition. (Sec. 30, NIRC; CIR v, YMCA, GR No. 124043, 1998).
order tosubsidize the expenses
of the Day and Night Care
Centerand to support its
 religious, charitable and social
welfareprojects, the Foundation
leased the 300square meter
area of the second and third
floors of the building for use as
aboarding house. The
Foundation also operates a
canteenand a gift shop within
the premises, all the income
fromwhich is used actually,
directly, and exclusively for
thepurposes for which the
Foundation was organized.A.
Considering the constitutional
provision grantingtax
exemption to non-stock
corporations such as
thoseformed exclusively for
religious, charitable or social
welfarepurposes, explain the
meaning of the last paragraph
of saidSec. 30 of the 1997 Tax
Code which states that
“Income ofwhatever kind and
character of the foregoing
organizations from any of their
properties, real or personal, or
from any of their activities
conducted for profit regardless
of the disposition made of such
income shall be subject to tax
imposed under this Code."
(5%)
XYZ Foundation is a non-stock,
non-profit association duly
organized for religious,
Yes. The income derived from the sale of lot and rentals from its boarding house are
charitable and social welfare General Doct
considered as income Tax
purposes. Last January 3, Principl rine
1 from properties which are subject to tax. Likewise, the income from the operation of the Exe
2000 it sold a portion of its lot
canteen and gift shop es of in 2002
0 used for religious purposes and mp
are income from its activities conducted for profit which are subject to tax. The income Taxatio Taxa
utilized the entire proceeds
tax attaches irrespective of the disposition of these incomes. (Sec. 30, NIRC; CIR v. tion
for the construction of a n tion
YMCA, GR No. 124043, 1998).
building to house its free Day
and
Night Care Center for children
 of single parents. In order to
subsidize the expenses of the
Day and Night Care Center
and to support its religious,
charitable and social welfare
projects, the Foundation leased
the 300square meter area of
the second and third floors of
the building for use as a
boarding house. The
Foundation also operates a
canteen
and a gift shop within the
premises, all the income from
which is used actually, directly,
and exclusively for the
purposes for which the
Foundation was organized.Is
the income derived by XYZ
Foundation from the sale of a
portion of its lot, rentals from its
boarding house and the
operation of its canteen and gift
shop subject to tax? Explain.
(5%)
Pri
ma
faci
Taxp e
There is prima facie evidence of a false or fraudulent return when the taxpayer has
willfully and knowingly filed it withthe intent to evade a part or all of the tax legally due ayer' evid
Tax
1 What constitutes prima facie from him (Ungab v. Cusi,, 97 SCRA 877). There must appear adesign to mislead or s enc
evidence of a false orfraudulent Remedi 2002
1 return? [2%] deceive on the part of the taxpayer, or at least culpable negligence. A mistake not Rem e of
culpable inrespect of its value would not constitute a false return. (Words and Phrases, es
Vol. 16, page 173).
edie Frau
s dule
nt
Ret
urn
(2002) On December 06, 2001, A. No. Donations and/or contributions made to qualified donee institutions consisting of Real Ded Ded
1 LVN Corporation donated a property
Propert uctio ucti 2002
2 piece other than money shall be based on the acquisition cost of the property. The donor is
of vacant lot situated in not entitled to claim y Tax n on on
 Mandaluyong City to an
accredited
and duly registered non-stock,
non-profit educational
institution to be used by the
latter in building a sports on
complex for students. Inco
as full deduction the fair market value/zonal value of the lot donated. (Sec. 34(H), Inco
A. May the donor claim in full me
NIRC). me
as deduction from its Tax
gross income for the taxable Tax
year 2001 the amount of the
donated lot equivalent to its fair
market value/zonal value at the
time of the donation? Explain
your answer. (2%)
Exe
Exe
mp
mpti
In order that donations to non- tion
In order that donations to non-stock, non-profit educational institution may be exempt on
stock, non-profit Real fro
1 from the donor's from
educational institution may be
gift tax, it is required that not more than 30% of the said gifts shall be used by the Propert m 2002
3 exempt from the donor's gift don
donee-institution for y Tax don
tax, what conditions must be
administration purposes. (Sec. 101(A)(3), NIRC). or's
met by the donee? (3%) or's
gift
gift
tax
tax
The following real property taxes aside from the basic real property tax may be imposed
by provincial and city
governments as well as by municipalities in the Metro Manila area:
1 Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
2 Additional Ad-valorem tax on Idle lands (Sec. 23§, LGC); and
3 Special levy (Sec. 240). Real
Aside from the basic real
[Note: The question is susceptible to dual interpretation because it is asking for three Local Real
estate tax, give three (3) other Pro
other taxes and not three other Govern Prop
1 taxes which may be imposed pert
real property taxes. Accordingly, an alternative answer should be considered and given
by provincial and city ment erty 2002
4 full credit] y
governments as well as by Taxatio Taxe
A. The following taxes, aside from basic real estate tax, may be imposed by:
municipalities in the Metro Tax
1. Provincial Government Printer's or publisher's tax Franchise Tax Professional tax n s
Manila area. (3%) es
2. City Government - may levy taxes which the province or municipality are authorized
to levy (Sec. 151, LGC)
Printer's or publisher's tax Franchise tax Professional tax Answers to the BAR: Taxation
1994-2006 (Arranged by Topics)
3. Municipalities in the Metro Manila Area - may levy taxes at rates which shall not
exceed by 50% the maximum
 rates prescribed in the Local Government Code.
Annual fixed tax on manufacturers, assemblers, repackers, processors, brewers,
distillers, rectifiers and
compounders of liquors, distilled spirits, and wines or manufacture of any article of
commerce of whatever kind or nature;
Annual fixed tax on wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature;
Percentage tax on retailers [Note: Other taxes may comprise the enumeration because
many other taxes are authorized to be imposed by LGUs.
An Ordinance was passed by
the Provincial Board of
aProvince in the North, Imp
increasing the rate of basic The protest is devoid of merit. No public hearing is required before the enactment of a
realproperty tax from 0.006% local tax ordinancelevying the basic real property tax (Art. 324,
ositi
to 1 % of the assessed value LGCRegulations).ALTERNATIVE ANSWER:Yes, there is merit in the protest provided on
Local Real
ofthe real property effective that sufficient proof could be introduced for the non-observance of publichearing. By of
January 1, 2000. Residents of implication, the Supreme Court recognized that public hearings are required to be Govern Prop
1 Real
themunicipalities of the said conducted prior to theenactment of an ordinance imposing real property taxes. Although ment erty 2002
5 province protested the it was concluded by the highest tribunal thatpresumption of validity of a tax ordinance Pro
Taxatio Taxe
Ordinanceon the ground that can not be overcome by bare assertions of procedural defects on its enactment, it would pert
no public hearing was seem that if the taxpayer had presented evidence to support the allegation that no n s
y
conducted and,therefore, any public hearing was conducted, the Court should have ruled that the tax ordinance is
increase in the rate of real invalid. (Belen Figuerres v. Court ofAppeals, GRNo. 119172, March 25, 1999). Tax
property tax isvoid. Is there es
merit in the protest? Explain
your answer.(2%)
The following properties are exempt from real property taxes: (Sec. 234, LGC).
1 Real property owned by the Republic of the Philippines or any of its political Exe
subdivisions except when the beneficial use thereof has been granted, for consideration mp
or otherwise, to a taxable person;
2 All lands, buildings and improvements actually, directly, and exclusively used for tion
religious, charitable or educational purposes by charitable institutions, churches, Local Real fro
Under the Local Government parsonages or convents appurtenant thereto, mosques, nonprofit or religious Govern Prop m
1 Code, what properties are cemeteries;
exempt from real property 3 All machineries and equipment that are actually, directly and exclusively used by local ment erty real 2002
6
taxes? (5%) water districts and Taxatio Taxe pro
government-owned or controlled corporations engaged in the supply and distribution of n s pert
water and/or generation and
y
transmission of electric power;
4 All real property owned by duly registered cooperatives as provided for under R.A. No. taxe
6938; and s
5 Machinery and equipment used for pollution control and environmental protection.
1 The real property of Mr. and The appeal should be decided against Mr. and Mrs. Angeles. The law focuses on the Local Real Actu
2002
7 Mrs Angeles, situated in a actual use of the property for Govern Prop al
 commercial area in front of the
public market, was declared
in their Tax Declaration as
residential because it had been
used by them as their family
residence from the time of its
construction in 1990. However,
since January 1997, when
the spouses left for the United
States to stay there
permanently with their children, use
the property has been of
classification, valuation and assessment purposes regardless of ownership. Section 217 ment erty
rented to a single proprietor real
of the Local Government Code provides that "real property shall be classified, valued,
engaged in the sale of Taxatio Taxe
and assessed on the basis of its actual use regardless of where located, whoever owns pro
appliances and agri-products. n s
it, and whoever uses it".
The Provincial Assessor pert
reclassified the property as y
commercial for tax purposes
starting January 1998. Mr. and
Mrs. Angeles appealed to the
Local Board of Assessment
Appeals, contending that the
Tax Declaration previously
classifying their property as
residential is binding. How
should the appeal be decided?
(5%)
1 Whenever the decision of the Automatic review is intended to protect the interest of the Government in the collection Tax Auto Gov 2002
Collector of Customs isadverse of taxes and customs duties inseizure and protest cases. Without such automatic
8 to the government, it is review, neither the Commissioner of Customs nor the Secretary ofFinance would know
Remedi mati ern
automatically elevated tothe about the decision laid down by the Collector favoring the taxpayer. The power to es c men
Commissioner for review and, decide seizure and protest cases may be abused if no checks are instituted.Automatic Revi t in
if it is affirmed by him, itis review is necessary because nobody is expected to appeal the decision of the Collector ew the
automatically elevated to the which is favorable to the taxpayer and adverse to the Government. This is the reason
Secretary of Finance forreview. why whenever the decision of the Collector isadverse to the Government, the said coll
What is the basis of the decision is automatically elevated to the Commissioner for review; and if such decision ecti
automatic review procedure in is affirmed by the Commissioner, the same shall be automatically elevated to and be on
the Bureau of Customs? finally reviewed by the Secretary of Finance (Yaokasin v. Commissioner of Customs,
Explain your answer. (5%) 180 SCRA 591 [1989]). of
taxe
s
and
cust
 oms
On March 15, 2000, the BIR
issued a deficiency income tax
assessment for the taxable
year 1997 against the Valera
Group of Companies (Valera)
in the amount of P10 million.
Counsel for Valera protested
the assessment and requested
a reinvestigation of the case.
During the investigation, it was
shown that Valera had been
transferring its properties to
other persons. As no additional
evidence to dispute the
assessment had been Dist
presented, the BIR issued on Yes, because there is no prohibition for this procedure considering that the filing of a Distr
Tax rain
1 June 16, civil action for collection aint
2000 warrants of distraint and during the pendency of an administrative protest constitutes the final decision of the Remedi t 2002
9 and
levy on the properties and Commissioner on the protest (CIR v. Union Shipping Corp., 85 SCRA 548 [1990]) es and
ordered the filing of an action in
Levy
Levy
the Regional Trial Court
for the collection of the tax.
Counsel for Valera filed an
injunctive suit in the Regional
Trial Court to compel the
BIR to hold the collection of the
tax in abeyance until the
decision on the protest was
rendered.
A. Can the BIR file the civil
action for collection,
pending decision on the
administrative protest? Explain.
(3%)
On March 15, 2000, the BIR
issued a deficiency income
I will wait for the filing of the civil action for collection and consider the same as an Juris Juris
taxassessment for the taxable
appealable decision. I will notfile an injunctive suit because it is not an available remedy. Tax dicti dicti
2 year 1997 against the
I would then appeal the case to the Court of Tax Appeals and move for the dismissal of
ValeraGroup of Companies Remedi on on 2002
0 the collection case with the RTC.Once the appeal to the CTA is filed on time, the CTA
(Valera) in the amount of P10 es of of
has exclusive jurisdiction over the case. Hence, the collectioncase in the RTC should be
million.Counsel for Valera
dismissed (Tabes v. Flojo, 115 SCRA 278 [1982]). CTA CTA
protested the assessment and
requested a reinvestigation of
 the case. During the
investigation, it was shown that
Valera had been transferring its
properties to other persons. As
no additional evidence to
dispute theassessment had
been presented, the BIR
issued on June 16,2000
warrants of distraint and levy
on the properties andordered
the filing of an action in the
Regional Trial Courtfor the
collection of the tax. Counsel
for Valera filed aninjunctive suit
in the Regional Trial Court to
compel theBIR to hold the
collection of the tax in
abeyance until thedecision on
the protest was rendered.As
counsel for Valera, what action
would you takein order to
protect the interest of your
client? Explain youranswer.
(2%)
2 The Collector of Customs of No, because there is no decision as yet by the Commissioner of Customs which can be Tax Juris Viol 2002
the Port of Cebu issued appealed to the
1 warrants of seizure and CTA. Neither the remedy of prohibition would lie because the CTA has not acquired any
Remedi dicti atio
detention against the appellate jurisdiction over the es on n of
importation of machineries and seizure case. The writ of prohibition being merely ancillary to the appellate jurisdiction, of tax
equipment by LLD Import and the CTA has no jurisdiction over it until it has acquired jurisdiction on the petition for CTA and
Export Co. review.
(LLD) for alleged nonpayment Since there is no appealable decision, the CTA has no jurisdiction over the petition for cust
of tax and customs duties in review and writ of prohibition. (Commissioner of Customs v. Alikpala, 36 SCRA 208 om
violation of customs laws. LLD [1970]). duti
was notified of the seizure,
but, before it could be heard, es
the Collector of Customs
issued a notice of sale of the
articles. In order to restrain the
Collector from carrying out the
order to sell, LLD filed with
the Court of Tax Appeals a
petition for review with
application for the issuance of
a writ of prohibition. It also
 filed with the CTA an appeal for
refund of overpaid taxes
on its other importations of raw
materials which has been
pending with the Collector of
Customs. The Bureau of
Customs moved to dismiss the
case for lack of jurisdiction of
the Court of Tax Appeals.
A. Does the Court of Tax
Appeals have jurisdiction
over the petition for review and
writ of prohibition?
Explain (3%)
2 The Collector of Customs of No, because the Commissioner of Customs has not yet rendered a decision on the Tax Juris Viol 2002
the Port of Cebu claim for refund. Thejurisdiction of the Commissioner and the CTA are not concurrent in
2 issuedwarrants of seizure and so far as claims for refund are concerned.The only exception is when the Collector has
Remedi dicti atio
detention against the not acted on the protested payment for a long time, the continuedinaction of the es on n of
importation of machineries and Collector or Commissioner should not be allowed to prejudice the taxpayer. (Nestle of tax
equipment by LLD Import and Phils., Inc. v.Court of Appeals, GR No. 134114, July 6, 2001). CTA and
Export Co.(LLD) for alleged
nonpayment of tax and cust
customs duties inviolation of om
customs laws. LLD was notified duti
of the seizure,but, before it
could be heard, the Collector of es
Customsissued a notice of sale
of the articles. In order to
restrain theCollector from
carrying out the order to sell,
LLD filed withthe Court of Tax
Appeals a petition for review
withapplication for the issuance
of a writ of prohibition. It
alsofiled with the CTA an
appeal for refund of overpaid
taxeson its other importations
of raw materials which has
beenpending with the Collector
of Customs. The Bureau of
Customs moved to dismiss the
case for lack of jurisdiction of
the Court of Tax Appeals.Will
an appeal to the CTA for tax
refund be possible? Explain
 (2%)
On August 5, 1997, Adamson
Co., Inc. (Adamson) filed a
request for reconsideration of
the deficiency withholding tax
assessment on July 10, 1997,
covering the taxable year 1994.
After administrative hearings,
the original assessment of
P150,000.00 was reduced to
P75.000.00 and a modified The right of the Government to collect by judicial action has not prescribed. The filing of
Pres Pres
assessment was thereafter the request for reconsideration suspended the running of the prescriptive period and
issued on August 05, 1999. commenced to run again when a decision on the protest was made on August 5, 1999. Judicial cripti crip
2
Despite repeated demands, It must be noted that in all cases covered by an assessment, the period to collect shall Remedi ve tive 2002
3 Adamson failed and be five (5) years from the date of the assessment but this period is suspended by the es Peri Peri
refused to pay the modified filing of a request for reconsideration which was acted upon by the Commissioner of
assessment. Consequently, the Internal Revenue (CIR v. Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991]). od od
BIR brought an action for
collection in the Regional Trial
Court on September 15, 2000.
Adamson moved to dismiss
the action on the ground that
the government's right to
collect the tax by judicial action
has prescribed. Decide the
case. (5%)
2 In the investigation of the No, the contention of the counsel is untenable. Section 228 of the Tax Code expressly Judicial Juris Pre- 2002
withholding tax returns of provides that nopre-assessment notice is required when a discrepancy has been
4 AZMedina Security Agency (AZ determined between the tax withheld and the amount actually remitted by the
Remedi dicti asse
Medina) for the taxable withholding agent. Since the amount assessed relates to deficiency withholding taxes, es on ssm
years1997 and 1998, a the BIR is correct in issuing the assessment and demand letter calling for the immediate of ent
discrepancy between the taxes payment of the deficiency withholding taxes. (Sec. 228, NIRC). CTA noti
withheldfrom its employees
and the amounts actually ce
remitted to the government not
was found. Accordingly, before nec
the period of prescription
commenced to run, the BIR essa
issued anassessment and a ry
demand letter calling for the
immediatepayment of the
deficiency withholding taxes in
the totalamount of
P250,000.00. Counsel for AZ
Medina protestedthe
 assessment for being null and
void on the ground thatno pre-
assessment notice had been
issued. However, theprotest
was denied. Counsel then filed
a petition forprohibition with the
Court of Tax Appeals to
restrain thecollection of the
tax.A. Is the contention of the
counsel tenable? Explain(2%)
In the investigation of the
withholding tax returns of AZ
Medina Security Agency (AZ
Medina) for the taxable years
1997 and 1998, a discrepancy
between the taxes withheld
from its employees and the
amounts actually remitted to
the government was found.
Accordingly, before the period
of prescription commenced to
run, the BIR issued an Pre-
assessment and a demand asse
The special civil action for prohibition will not prosper, because the CTA has no
letter calling for the immediate ssm
jurisdiction to entertain the same.
payment of the deficiency Juris
The power to issue writ of injunction provided for under Section 11 of RA 1125 is only ent
withholding taxes in the total Judicial dicti
2 ancillary to its appellate noti
amount of P250,000.00.
jurisdiction. The CTA is not vested with original jurisdiction to issue writs of prohibition or Remedi on 2002
5 Counsel for AZ Medina ce
injunction independently of es of
protested
and apart from an appealed case. The remedy is to appeal the decision of the BIR. not
the assessment for being null CTA
(Collector v. Yuseco, 3 SCRA 313 nec
and void on the ground that
[1961]).
no pre-assessment notice had essa
been issued. However, the ry
protest was denied. Counsel
then filed a petition for
prohibition with the Court of
Tax Appeals to restrain the
collection of the tax.Will the
special civil action for
prohibition
brought before the CTA under
Sec. 11 of R.A, No. 1125
prosper? Discuss your answer.
(3%)
 Minolta Philippines, Inc.
(Minolta) is an EPZA-
registeredenterprise enjoying
preferential tax treatment under
aspecial law. After investigation
of its withholding tax returnsfor
the taxable year 1997, the BIR
issued a deficiencywithholding
tax assessment in the amount
of P150.000.00.On May 15,
1999, because of financial
difficulty, thedeficiency tax Civil
remained unpaid, as a result of Yes, BIR's action for collection will prosper because the assessment is already final and Taxp
and
which theassessment became executory, it can alreadybe enforced through judicial action. As counsel of Minolta, I will ayer'
final and executory. The BIR introduce evidence that the income payment was reported by the payee and the income Tax Cri
2 s
also found that, in violation of tax was paid thereon in 1997 so that my client may only be allowed to pay the civil Remedi min 2002
6 the provisions of the National penalties for non-withholding pursuant to RMO No. 38-83. [Note: It is not clear whether Rem
es al
Internal Revenue Code, this is a case ofnon-withholding/ underwithholding or non-remittance of taxwithheld. As edie
Minolta did not file its final such, the tax counsel may be open to otherremedies against the assessment.] Acti
s
corporate income tax return for on
the taxable year 1998, because
it allegedly incurred net loss
from its operations.On May 17,
2002, the BIR filed with the
Regional TrialCourt an action
for collection of the deficiency
withholdingtax for 1997.A. Will
the BIR's action for collection
prosper? Ascounsel of Minolta,
what action will you take?
Explain youranswer. (5%)
Minolta Philippines, Inc.
All criminal violations of the Tax Code may be compromised except those already filed
(Minolta) is an EPZA-registered
in court or those
enterprise enjoying preferential
involving fraud (Section 204, NIRC). Accordingly, if Minolta makes a voluntary offer to Civil
tax treatment under a Taxp
compromise the criminal violations for non-filing and non-payment of taxes for the year
special law. After investigation and
1998, the Commissioner may accept the offer which is ayer'
of its withholding tax returns Tax Cri
2 allowed by law. However, if it can be established that a tax has not been paid as a s
for the taxable year 1997, the
consequence of non-filing of the Remedi min 2002
7 BIR issued a deficiency Rem
return, the civil liability for taxes may be dealt with independently of the criminal es al
withholding tax assessment in
violations. The compromise edie
the amount of P150.000.00. Acti
settlement of the criminal violations will not relieve the taxpayer from its civil liability. But s
On May 15, 1999, because of
the civil liability for taxes on
financial difficulty, the
may also be compromised if the financial position of the taxpayer demonstrates a clear
deficiency tax remained
inability to pay the tax.
unpaid, as a result of which the
 assessment became final and
executory. The BIR also found
that, in violation of the
provisions of the National
Internal Revenue Code,
Minolta did not file its final
corporate income tax return for
the taxable year 1998, because
it allegedly incurred net loss
from its operations.
On May 17, 2002, the BIR filed
with the Regional Trial
Court an action for collection of
the deficiency withholding
tax for 1997. May criminal
violations of the Tax Code be
compromised? If Minolta
makes a voluntary offer to
compromise the criminal
violations for non-filing and
non-payment of taxes for the
year 1998, may the
Commissioner accept the
offer? Explain (5%)
2 Mr. Chan, a manufacturer of The motion to dismiss should be denied. The satisfaction of the civil liability is not one of Tax Taxp Exti 2002
garments, was investigated the grounds for the extinctionof criminal action (People v. Ildefonso Tierra, 12 SCRA
8 forfailure to file tax returns and 666 [1964]). Likewise, the payment of the tax due afterapprehension shall not constitute
Remedi ayer' ncti
to pay taxes for the taxable a valid defense in any prosecution for violation of any provision of the Tax Code(Sec. es s on
year 1997. Despite the 253[a], NIRC). However, the garments and materials seized from the factory should be Rem of
subpoena duces tecum issued ordered returned because the payment of the tax had released them from any lien that edie crim
to him, he refused to present the Government has over them.
and submit his books of s inal
accounts andallied records. liabi
Investigators, therefore, raided lity
his factory and seized several
bundles of manufactured
garments, supplies and unpaid
imported textile materials. After
hisapprehension and based on
the testimony of a
formeremployee, deficiency
income and business taxes
wereassessed against Mr.
Chan on April 15, 2000. It was
thenthat he paid the taxes.
 Criminal action was
nonethelessinstituted against
him in the Regional Trial Court
forviolation of the Tax Code.
Mr. Chan moved to dismiss
thecriminal case on the ground
that he had already paid
thetaxes assessed against him.
He also demanded the return
ofthe garments and materials
seized from his factory. How
will you resolve Mr. Chan's
motion? (5%)
It is considered inherent in a sovereign State because it is a necessary
attribute of sovereignty. Without this power no sovereign State can exist or
Legi
endure. The power to tax proceeds upon the theory that the existence of a General
Pow slati
Why is the power to tax government is a necessity and this power is an essential and inherent attribute Principl
er of ve
1 considered inherent in a of sovereignty, belonging as a matter of right to every independent state or es of 2003
Taxa in
sovereign State? (4%) government. No sovereign state can continue to exist without the means to Taxatio
tion Nat
pay its expenses; and that for those means, it has the right to compel all n
ure
citizens and property within its limits to contribute, hence, the emergence of
the power to tax. (51 Am. Jur.,Taxation 40).
No. Congress cannot abolish what is expressly granted by the fundamental Local
May Congress, under the Pow
law. The only authority conferred to Congress is to provide the guidelines and Govern
1987 Constitution, abolish er of Lega
2 limitations on the ment 2003
the power to tax of local Taxa lity
local government's exercise of the power to tax (Sec. 5, Art. X, 1987 Taxatio
governments? (4%) tion
Constitution). n
A "fringe benefit" is defined
It is the employer who is legally required to pay an income tax on the fringe
as being any good, service
benefit. The fringe benefit tax is imposed as a FINAL WITHHOLDING TAX Emp
or other benefit furnished
placing the legal obligation to remit the tax on the employer, such that, if the Fring loye
or granted in cash or in kind
tax is not paid the legal recourse of the BIR is to go after the employer. Any Income e r
by an employer to an
3 amount or value received by the employee as a fringe benefit is considered Taxatio Bene Req 2003
individual employee. Would
tax paid hence, net of the income tax due thereon. The person who is legally n fit uire
it be the employer or the
required to pay (same as statutory incidence as distinguished from economic Tax d To
employee who is legally
incidence) is that person who, in case of non-payment, can be legally Pay
required to pay an income
demanded to pay the tax.
tax on it? Explain. (4%)
 On 30 June 2000, X took
out a life insurance policy
on his own life in the
amount of P2,000,000.00.
He designated his wife, Y,
as irrevocable beneficiary
to P1,000,000.00 and his
son, Z, to the balance of
P1,000,000.00 but, in the (a) No. The law explicitly provides that proceeds of lifeinsurance policies paid Life
Exclu
latter designation, reserving to the heirs or beneficiaries upon the death of the insured are excluded from Insu
Income sions
his right to substitute him gross income and is exempt from taxation. The proceeds of life insurance ranc
4 Taxatio and 2003
for another. On 01 received upon the death of the insured constitute a compensation for the loss e
n Inclu
September 2003, X died of life, hence a return of capital, which is beyond the scope of income Poli
sions
and his wife and son went taxation. (Section 32(B)(1) 1997 Tax Code) cy
to the insurer to collect the
proceeds of X's life
insurance policy. (8%) (a)
Are the proceeds of the
insurance subject to income
tax on the part of Y and Z
for their respectiveshares?
Explain.
5 On 30 June 2000, X took (b) Only the proceeds of P1,000,000.00 given to the son, Z, shall form part of Estate Gros Life 2003
out a life insurance policy the Gross Estate of X. Under the Tax Code, proceeds of life insurance shall Tax s Insu
on his own life in the form part of the gross estate of the decedent to the extent of the amount Estat ranc
amount of P2,000,000.00. receivable by the beneficiary designated in the policy of the insurance except e e
He designated his wife, Y, when it is expressly stipulated that the designation of the beneficiary is Poli
as irrevocable beneficiary irrevocable. As stated in the problem, only the designation of Y is irrevocable cy
to P1,000,000.00 and his while the insured/decedent reserved the right to substitute Z as
son, Z, to the balance of beneficiary for another person. Accordingly, the proceeds received by Y shall
P1,000,000.00 but, in the be excluded while the proceeds received by Z shall be included in the gross
latter designation, reserving estate of X. (Sect/on 85(E), 1997 Tax Code)
his right to substitute him
for another. On 01
 September 2003, X died
and his wife and son went
to the insurer to collect the
proceeds of X's life
insurance policy. (8%)

(b) Are the proceeds of the

insurance to form part of
the gross estate of X?
Explain.
6 X, while driving home from Nothing is taxable. Under the Tax Code, any amount received as Income Exclu Com 2003
his office, was seriously compensation for personal injuries or sickness, plus the amounts for any Taxatio sions pen
injured when his damages received whether by suit or agreement, on account of such injuries n and sati
automobile was bumped or sickness shall be excluded from gross income. Since the entire amount of Inclu on
from behind by a bus driven P450, 000.00 received are award of damages on account of the injuries sions for
by a reckless driver. As a sustained; all shall be excluded from his gross income. Obviously, these pers
result, he had to pay damages are considered by law as mere return of capital. (Section 32(B)(4), onal
P200,000.00 to his doctor 1997 Tax Code) injur
and P100, 000.00 to the ies
hospital where he was and
confined for treatment. He sick
filed a suit against the bus ness
driver and the bus company
and was awarded andpaid
actual damages of
P300,000.00 (for his doctor
and hospitalization bills),
P100,000.00 by way of
moral damages, and
P50,000.00 for what he had
to pay his attorney for
bringing his case to court.
Which, if any, of the
foregoing awards are
 taxable income to X and
which are not? Explain.
(8%)

(a) The term "capital asset" regards all properties not specifically excluded in
the statutory definition of capital assets, the profits or loss on the sale or the
exchange ofwhich are treated as capital gains or capital losses. Conversely, all
those properties specifically excluded are considered as ordinary assets and
the profits or losses realized must have to be treated as ordinary gains or
Capi
ordinary losses. Accordingly, "Capital Assets" includes property held by the
tal
taxpayer whether or not connected with his trade or business, but the term General
Capit Asse
does not include any of the following, which are consequently considered Principl
Distinguish a "capital asset" al t vs.
7 "ordinary assets":(1) stock in trade of the taxpayer or other property of a kind es of 2003
from an "ordinary asset". Gain Orid
which would properly be included in the inventory of the taxpayer if on hand Taxatio
Tax nary
at the close of the taxable year;(2) property held by the taxpayer primarily for n
Asse
sale to customers in the ordinary course of trade or business;(3) property used
t
in the trade or business of a character which is subject to the allowance for
depreciation provided in Section 34 (F) of the Tax Code; or(4) real property
used in trade or business of thetaxpayer.The statutory definition of "capital
assets" practically excludes from its scope, it will be noted, all property held by
the taxpayer if used in connection with his trade or business.
 It is to insure that only costs or expenses incurred in earning the income shall
be deductible for income tax purposes consonant with the requirement of the
law thatonly necessary expenses are allowed as deductions from gross
income. The term "NECESSARY EXPENSES" presupposes that in order to be
allowed as deduction, theexpense must be business connected, which is not
the case insofar as capital losses are concerned. This is also the reason why all
non-business connected expenses likepersonal, living and family expenses, are
What is the rationale for
not allowed as deduction from gross income (Section 36(A)(1) of the 1997 Tax Capi
the rule prohibiting the Income Ded
Code).The prohibition of deduction of capital losses from ordinary gains is tal
8 deduction of capital losses Taxatio uctio 2003
designed to forestall the shifting of deductions from an area subject to lower Loss
from ordinary gains? n n
taxes to an areasubject to higher taxes, thereby unnecessarily resulting in es
Explain.
leakage of tax revenues. Capital gains are generally taxed at a lower rate to
prevent, among others, the bunching of income in one taxable year which is a
liberality in the law begotten from motives of public policy (Rule on Holding
Period). It stands to reason therefore, that if the transaction results in loss, the
same should be allowed only from and to the extent of capital gains and not
to be deducted from ordinary gains which are subject to a higher rate of
income tax. (Chirelstein, Federal Income Taxation, 1977 Ed.)

9 On 03 January 1998, X, a No. Stock dividends are not realized income. Accordingly, the different Income Exe Stoc 2003
Filipino citizen residing in provisions of the Tax Code imposing a tax on dividend income only includes Taxatio mpti k
the Philippines, purchased within its purview cash and n on Divi
one hundred (100) shares property dividends making stock dividends exempt from income tax. However, den
in the capital stock of Y if the distribution of stock dividends is the equivalent of cash or property, as ds
Corporation, a domestic when the distribution results in a change of ownership interest of the
company. On 03 January shareholders, the stock dividends will be subject to income tax. (Section 24(B)
2000, Y Corporation (2); Section 25(A)&(B); Section 28(B)(5)(b), 1997 Tax Code)
declared, out of the profits
of the company earned
after 01 January 1998, a
hundred percent (100%)
stock dividends on all
stockholders of record
 as of 31 December 1999 as
a result of which X holding
in Y Corporation became
two hundred (200) shares.
Are the stock dividends
received by X subject to
income tax? Explain. (8%)
Prini
(a) TAX BENEFIT RULE states that the taxpayer is obliged to declare as taxable
cipl
income subsequent recovery of bad debts in the year they were collected to
e
the extent of the tax benefit enjoyed by the taxpayer when the bad debts General
Tax und
were written-off and claimed as a deduction from income. It also applies to Principl
1 (a) What is meant by the Bene er
taxes previously deducted from gross income but which were subsequently es of 2003
0 "tax benefit rule"? fit the
refunded or credited. The taxpayer is also required to report as taxable Taxatio
Rule Tax
income the subsequent tax refund or tax credit granted to the extent of the n
Ben
tax benefit the taxpayer enjoyed when such taxes were previously claimed as
efit
deduction from income.
Rule
(b) X Company has a business connected receivable amounting to P100,000.00
Illus
from Y who was declared bankrupt by a competent court. Despite earnest
trati
efforts to collect the same, Y was not able to pay, prompting X Company to General
Tax on
(b) Give an illustration of write-off the entire liability. During the year of write-off, the entire amount Principl
1 Bene of
the application of the tax was claimed as a deduction for income tax purposes reducing the taxable net es of 2003
1 fit the
benefit rule. income of X Company to only P1,000,000.00. Three years later, Y voluntarily Taxatio
Rule appl
paid his obligation previously written-off to X Company. In the year of n
icati
recovery, the entire amount constitutes part of gross income of X Company
on
because it was able to get full tax benefit three years earlier.
X dies in year 2000 leaving a No. The Commissioner of Internal Revenue has the authority to inquire into Secr
bank deposit of bank deposit accounts of a decedent to determine his gross estate ecy
P2,000,000.00 under joint notwithstanding the Gros of
1 account with his associates provisions of the Bank Secrecy Law. Hence, the banks holding the deposits in Estate s Ban
2003
2 in a law office. Learning of question may not refuse to disclose the amount of deposits on the ground of Tax Estat k
X's death from the secrecy of bank e Dep
newspapers, the deposits. (Section 6(F) of the 1997 Tax Code). The fact that the deposit is a osit
Commissioner of Internal joint account will not preclude the Commissioner from inquiring thereon Law
 Revenue wrote to every
bank in the country asking
them to disclose to him the
because the law mandates that if a bank has knowledge of the death of a
amount of deposits that
person, who maintained a bank deposit account alone, or jointly with another,
might be outstanding in his
it shall not allow any withdrawal from the said deposit account, unless the
name or jointly with others
Commissioner has certified that the taxes imposed thereon have been paid.
at the date of his death.
(Section 97 of the 1997 Tax Code). Hence, to be able to give the required
May the bank holding the
certification, the inclusion of the deposit is imperative, which may be made
deposit refuse to comply on
possible only through the inquiry made by the Commissioner.
the ground of the Secrecy
of Bank Deposit Law?
Explain. (8%)
X is a friend of Y, the
chairman of Political Party
Z, who wants to run for
President in the 2004 The donation to Y, once he becomes a candidate for an elective post, is not
elections. Knowing that Y subject to donor's tax provided that he complies with the requirement of filing Don
needs funds for posters and returns of atio
streamers, X is thinking of contributions with the Commission on Elections as required under the n to
donating to Y P150,000.00 Omnibus Election Code. Exe a
1 Donor's
for his campaign. He asks mpti Poli 2003
3 Tax
you whether his intended The answer would be the same if X had donated the amount to Political Party on tical
donation to Y will be Z instead of to Y directly because the law places in equal footing any Can
subject to the donor's tax. contribution to any dida
What would your answer candidate, political party or coalition of parties for campaign purposes. te
be? Will your answer be the (Section 99(C) of the 1997 Tax Code).
same if he were to donate
to Political Party Z instead
of to Y directly? (8%)
X and his wife, Y, Filipinos No. The term "returning residents" refers to nationals who have stayed in a Retu Tou
living in the Philippines, foreign country for a period of at least six (6) months. (Section 105(f) of the Tariff rning rist/
1
went on a three-month Tariff and Customs Code). Due to their limited duration of stay abroad X and Y and Resi Trav 2003
4
pleasure trip around the are not considered as "returning residents" but they are merely considered as Cutoms dent eler
world during the months of travelers or tourists who enjoy the benefit of conditionally free importation. s s
 June, July and August 2002.
In the course of their trip,
they accumulated some
personal effects which were
necessary, appropriate and
[Note: Credit must likewise be given if the candidate answered in the
normally used in leisure
affirmative, considering that travelers or tourists are given the same tax
trips, as well as souvenirs in
treatment as that of returning residents, treating their personal effects, not in
non-commercial quantities.
commercial quantities, as conditionally free importation.]
Arethey "returning
residents" for purposes of
Section 105 of the Tariff
and Customs Code? Explain.
(8%)
The ordinance is in violation of the Rule of Uniformity and Equality, which
requires that all subjects or objects of taxation, similarly situated must be
The City of Makati, in order
treated alike in equal footing and must not classify the subjects in an arbitrary
to solve the traffic problem
manner. In the case at bar, the ordinance exempts cars carrying more than
in its business districts,
two occupants from coverage of the said ordinance. Furthermore, the
decided to impose a tax, to Rule Rule
ordinance only imposes the tax on private cars and exempts public vehicles
be paid by the driver, on all of of
from the imposition of the tax, although both contribute to the traffic Local
private cars entering the Unif Unif
problem. There exists no substantial standard used in the classification by the Govern
1 city during peak hours from ormi orm
City of Makati. ment 2003
5 8:00 a.m. to 9:00 a.m. from ty ity
Taxatio
Mondays to Fridays, but and and
Another issue is the fact that the tax is imposed on the driver of the vehicle n
exempts those cars carrying Equa Equ
and not on the registered owner of the same. The tax does not only violate
more than two occupants, lity ality
the requirement of
excluding the driver. Is the
uniformity, but the same is also unjust because it places the burden on
ordinance valid?
someone who has no control over the route of the vehicle. The ordinance is,
Explain. (8%)
therefore, invalid for violating the rule of uniformity and equality as well as for
being unjust.
In order to raise revenue No. The imposition of a tax, fee or charge or the generation of revenue under Local Pow
Local
1 for the repair and the Local Government Code, shall be exercised by the SANGUNIAN of the local Govern er
Taxa 2003
6 maintenance of the newly government ment to
tion
constructed City Hall of unit concerned through an appropriate ordinance (Section 132 of the Local Taxatio Imp
 Makati, the City Mayor
ordered the collection of
P1.00, called "elevator tax",
every time a person rides
any of the high-tech
elevators in the city Government Code). The city mayor alone could not order the collection of the
n ose
hall during the hours of tax; as such, the "elevator tax" is an invalid imposition.
8:00 a.m. to
10:00 a.m. and 4:00 p.m. to
6:00 p.m. Is the "elevator
tax" a valid imposition?
Explain. (8%)
X, a taxpayer who believes
that an ordinance passed
by the City Council of Pasay
is unconstitutional for being
discriminatory against him,
want to know from you, his
tax lawyer, whether or not The appeal should be made with the Secretary of Justice. Any question on the Local
he can file an appeal. In the constitutionality or legality of a tax ordinance may be raised on appeal with Govern Juris
1 App
affirmative, he asks you the Secretary of Justice within 30 days from the effectivity thereof. (Sec. 187, ment dicti 2003
7 eal
where such appeal should LGC; Hagonoy Market Vendor Association v. Municipality of Hagonoy, 376 Taxatio on
be made: the Secretary of SCRA 376 [2002]). n
Finance, or the Secretary of
Justice, or the Court of Tax
Appeals, or the regular
courts. What would your
advice be to your client, X?
(8%)
Under Article 415 of the Yes. The properties are considered as necessary fixtures of the gasoline Real Exclu
Civil Code, in order for station, without which the gasoline station would be useless. Machinery and Propert sions
1 Leas
machinery and equipment equipment installed by the lessee of the leased land is not real property for y and 2003
8 e
to be considered real purposes of execution of a final judgment only. they are considered as real Taxatio Inclu
property, the pieces must property for real property tax purposes as "other improvements to affixed or n sions
 be placed by the owner of
the land and, in addition,
must tend to directly meet
the needs of the industry or
works carried on by the
owner. Oil companies
install underground tanks in
the gasoline stations
located on land leased by
the oil companies from the
owners of the land where
the gasoline stations [are] attached real property under the Assessment Law and the Real Property Tax
located. Are those Code. (Caltex v Central Board of Assessment Appeals, 114 SCRA 296 [1982])
underground tanks, which
were not placed there by
the owner of the land but
which were instead placed
there by the lessee of the
land, considered real
property for purposes of
real property taxation
under the local
Government Code? Explain.
(8%)
Taxes are assessed for the
purpose of generating
revenue to be used for Taxes are levied by the executive branch of government. This statement is Legi
General Purp
public needs. Taxation itself erroneous because levy refers to the act of imposition by the legislature which slati
Principl ose
1 is the power by is done through the enactment of a tax law. Levy is an exercise of the power ve
es of of 2004
9 which the State raises to tax which is exclusively legislative in nature and character. Clearly, taxes are in
Taxatio Taxa
revenue to defray the not levied by the executive branch of government. (JVPC v. Albay, 186 SCRA Nat
n tion
expenses of 198 [1990]). ure
government. A jurist said
that a tax is what we pay
 for
civilization.

In our jurisdiction, which of

the following statements
may be erroneous:
1) Taxes are pecuniary in
nature.
2) Taxes are enforced
charges and contributions.
3) Taxes are imposed on
persons and property
within the territorial
jurisdiction of a State.
4) Taxes are levied by the
executive branch of the
government.
5) Taxes are assessed
according to a reasonable
rule of apportionment.

Justify your answer or

choice briefly. (5%)
Which of the following 2. The court should construe a law granting a municipal corporation the power
propositions may now be to tax most strictly.This proposition is now untenable. The basic rationale for
untenable:1) The court the grant of tax power to local government units is to safeguard their viability
should construe a law and self-sufficiency by directly granting them general and broad tax powers General Purp
Inte
granting tax exemption (Manila Electric Company v. Province of Laguna et. al., 306 SCRA 750 [1999]). Principl ose
2 rpre
strictly against the Considering that inasmuch as the power to tax may be exercised by local es of of 2004
0 tati
taxpayer. 2) The court legislative bodies, no longer by valid congressional delegation but by direct Taxatio Taxa
on
should construe a law authority conferred by the Constitution, in interpreting statutory provisions on n tion
granting a municipal municipal fiscal powers, doubts will, therefore, have to be resolved in favor of
corporation the power to municipal corporations (City Government of San Pablo, Laguna v. Reyes, 305
tax most strictly.3) The SCRA 353 [1999]). This means that the court must adopt a liberal construction
 Court of Tax Appeals has
jurisdiction over decisions
of the Customs
Commissioner in cases of a law granting a municipal corporation the power to tax.Note: If the
involving liability for examinee chose proposition no. 4 as his answer, it should be given full credit
customs duties.4) The Court considering that the present CTA Act (R.A. No. 9282) has made theCTA a
of Appeals has jurisdiction coequal judicial body of the Court of Appeals. The question "Which of the
to review decisionsof the following propositions may now be untenable" may lead the examinee
Court of Tax Appeals. 5) The tochoose a proposition which is untenable on the basis of the new law despite
Supreme Court has the cut-off date adopted by the Bar Examination Committee. R.A. No. 9282
jurisdiction to review was passed on March 30, 2004.
decisions of the Court of
Appeals.Justify your answer
or choice briefly. (5%)
2 RC is a law-abiding citizen The suit will not prosper. The remission or condonation of taxes due and Local Local Rem 2004
1 who pays his real estate payable to the exclusion of taxes already collected does not constitute unfair Govern Taxa issio
taxes discrimination. Each set of taxes is a class by itself and the law would be open emnt tion n/C
promptly. Due to a series of to attack as class legislation only if all taxpayers belonging to one class were Taxatio ond
typhoons and adverse not treated alike (Juan Luna Subdivision, Inc., v. Sarmiento, 91 Phil. 371 n ona
economic conditions, an [1952]). tion
ordinance is passed by MM of
City Tax
granting a 50% discount for es
payment of unpaid real
estate
taxes for the preceding year
and the condonation of all
penalties on fines resulting
from the late payment.
Arguing
that the ordinance rewards
delinquent taxpayers and
discriminates against
prompt ones, RC demands
 that he be
refunded an amount
equivalent to one-half of
the real taxes he paid. The
municipal attorney
rendered an opinion that
RC cannot be reimbursed
because the ordinance did
not provide for such
reimbursement. RC files
suit to declare the
ordinance void on the
ground that it is a class
legislation. Will his suit
prosper? Explain your
answer briefly. (5%)
2 A law was passed granting The contention is not tenable. The exemption granted is in the nature of a General Tax Exe 2004
2 tax exemption to unilateral tax exemption. Since the exemption given is spontaneous on the Principl Exe mp
certainindustries and part of the legislature and no service or duty or other remunerative conditions es of mpti tion
investments for a period of have been imposed on the taxpayers receiving the exemption, it may be Taxatio ons s
five years. Butthree years revoked at will by the legislature(Christ Church v. Philadelphia, 24 How. 300 n are
later, the law was repealed. [1860]). What constitutes an impairment of the obligation of contracts is the Unil
With the repeal, the revocation of an exemption which is founded on a valuable consideration ater
exemptions were because it takes the form and essence of a contract (Casanovas v. Hord, 8 Phil. al in
considered revoked by the 125 [1907]; Manila Railroad Company v. Insular Collector of Customs, 12 Phil. Nat
BIR, which assessed the 146 [1915]) ure
investing companies for
unpaid taxes effective on
the date of the repeal of
the law.NPC and KTR
companies questioned the
assessments onthe ground
that, having made their
investments in fullreliance
 with the period of
exemption granted by the
law, its repeal violated their
constitutional right against
theimpairment of the
obligations and contracts. Is
thecontention of the
companies tenable or not?
Reason briefly.(5%)
XYZ Colleges is a non-stock,
non-profit educational
institution run by the
A. All of the income derived by the non-stock, nonprofit educational
Archdiocese of BP City. It
institution will be exempt from taxation provided they are used actually,
collected
directly and exclusively for educational purposes. The Constitution provides
and received the following:
that all revenues and assets of non-stock, non-profit educational institution
(a) Tuition fees
which are actually, directly and exclusively used for educational purposes are
(b) Dormitory fees
exempt from taxation (Section 4 par. 3, Article XIV, 1987 Constitution).
(c) Rentals from canteen Edu
concessionaires Tax cati
The donation is, likewise, exempt from the donor's tax if actually, directly and Income
2 (d) Interest from money- Exe onal
exclusively used for educational purposes, provided not more than 30% of the Taxatio 2004
3 market placements of the mpti Insti
donation is used by the donee for administration purposes. The donee, being n
tuition ons tuti
a non-stock, non-profit educational institution, is a qualified entity to receive
fees ons
an exempt donation subject to conditions prescribed by law (Section 4 par. 4,
(e) Donation of a lot and
Art. XIV, 1987 Constitution, in relation to Section 101(AX3), NJRC).
building by school alumni
Which
Accordingly, none of the cited income and donation collected and received by
of these above cited
the non-stock, non-profit educational institution would not be exempt from
income and donation would
taxation.
not be
exempt from taxation?
Explain briefly. (5%)
 Suppose that XYZ Colleges If XYZ Colleges is a proprietary educational institution, all of its income from
is a proprietary educational school related and non-school related activities will be subject to the income
Edu
institution owned by the tax based on its aggregate net income derived from both activities
Tax cati
Archbishop's family, rather (Section27(B), NMC). Accordingly, all of the income enumerated in the
2 Donor's Exe onal
than the Archdiocese, problem will be taxable.The donation of lot and building will likewise be 2004
4 Tax mpti Insti
which of those above cited subject to the donor's tax because a donation to an educational institution is
ons tuti
income and donation would exempt only if the school is incorporated as a non-stock entity paying no
ons
be exempt from taxation? dividends.Since the donee is a proprietary educational institution, the
Explain briefly.(5%) donation is taxable (Section 101(AX3), NJRC).

Citing Section 10, Article VIII

of the 1987 Constitution
which provides that salaries
of judges shall be fixed by
law
and that during their No. The contention is incorrect. The salaries of judges are not tax-exempt and
continuance in office their their taxability is not contrary to the provisions of Section 10, Article VIII of the
salary shall Constitution on the non-diminution of the salaries of members of the judiciary
With
not be decreased, a judge during their continuance in office. The clear intent of the Constitutional Income Cov
2 holdi
of MM Regional Trial Court Commission that framed the Constitution is to subject their salaries to tax as Taxatio erag 2004
5 ng
questioned the deduction in the case of all taxpayers. Hence, the deduction of withholding taxes, being a n e
Tax
of withholding taxes from manner of collecting the income tax on their salary, is not a diminution
his contemplated by the fundamental law. (Nitafan et. al. v. CIR, 152 SCRA 284
salary since it results into a [1987]).
net deduction of his pay. Is
the
contention of the judge
correct? Reason briefly.
(5%)
A municipality, BB, has an No. The refusal of the mayor is not justified. The impositions are of different Local Dou Lice
2
ordinance which requires nature and character. The fixed annual fee is in the nature of a license fee Govern ble nse 2004
6
that all stores, restaurants, imposed through the exercise of police power while the 5% tax on purchase or emnt Taxa Fee
 and other establishments
selling liquor should pay a
fixed annual fee of P20.000.
Subsequently, the
municipal board proposed
an ordinance imposing a
sales tax equivalent to 5%
of the amount paid for the consumption is a local tax imposed through the exercise of taxing powers.
purchase or consumption of Both a license fee and a tax may be imposed on the same business or vs.
Taxatio
liquor in stores, restaurants occupation, or for selling the same article and this is not in violation of the rule tion Loca
n
and other establishments. against double taxation {Campania General de Tabacos de Filipinos v. City of l Tax
The municipal mayor, CC, Manila, 8 SCRA 367 [1963]).
refused to sign the
ordinance on the ground
that it would constitute
double taxation. Is the
refusal of the mayor
justified? Reason briefly.
(5%)
2 Due to an uncertainty No. Reversal of a ruling shall not be given retroactive application if said General Non- Non 2004
7 whether or not a new tax reversal will be prejudicial to the taxpayer. Therefore, the BIR cannot assess Principl Retr -
law is applicable to printing DEF Printers for back taxes because it would be violative of the principle of es of oacti Retr
companies, DEF Printers non-retractivity of rulings and doing so would result in grave injustice to the Taxatio vity oac
submitted a legal query to taxpayer who relied on the first rulinhg in good faith. (Section 246, NIRC; CIR v. n of tivit
the Burea of Internal Burroughs, Inc., 142 SCRA 324 [1986]) Rulin y of
Revenue on that issue. The gs Ruli
BIR issued a ruling that ngs
printing companies are not
covered by the new tax law.
Relying on this ruling, DEF
Printers did not pay said
tax.Subsequently, however,
the BIR reversed the ruling
and issued a new one
 stating that the tax covers
printing companies. Could
the BIR now assess DEF
Printers for back taxes
corresponding to the years
before the new ruling?
Reason briefly. (5%)
PQR Corp. claimed as a
deduction in its tax returns
theamount of P1,000,000
as bad debts. The
corporation wasassessed by
the Commissioner of
Internal Revenue
fordeficiency taxes on the
2 ground that the debts
8 cannot beconsidered as
"worthless," hence they do
not qualify as bad debts.
The company asks for your
advice on "What factors
will held in determining
whether or not the debts
are bad debts?" Answer
and explain briefly. (5%)
In order that debts be considered as bad debts because they have become
worthless, the taxpayer should establish that during the year for which the
deduction is sought, a situation developed as a result of which it became
evident in the exercise of sound, objective business judgment that there
remained no practical, but only vaguely theoretical, prospect that the debt
would ever be paid (Collector of Internal Revenue v. Goodrich International
Rubber Co., 21 SCRA 1336 [1967]). "Worthless" is not determined by an
Ele
inflexible formula or slide rule calculation, but upon the exercise of sound
General men
business judgment. The factors to be considered include, but are not limited
Principl ts of
to, the following:1 The debtor has no property nor visible income;2 The Bad
es of a 2004
debtor has been adjudged bankrupt or insolvent;3 Collateral shares have Debt
Taxatio Bad
become worthless; and4 There are numerous debtors with small amounts of
n Deb
debts and further action on the accounts would entail expenses exceeding the
t
amounts sought to be collected. ALTERNATIVE ANSWER:The following are the
factors to be considered indetermining whether or not the debts are bad
debts:1 The debt must be valid and subsisting;2 The debt is connected with
the taxpayer's trade orbusiness, and is not between related parties;3 There is
an actual ascertainment that the debt isworthless; and4 The debt is charged-
off within the taxable year.(PRC v. CA, 256 SCRA 667 [1996]; Revenue Regs.
No.5-99).
 As an incentive for
investors, a law was passed
giving newly established
companies in certain
economic zone exemption
from all taxes, duties, fees,
imposts and other charges Nat
for a period of three years. ure
A. No. Exemption from taxes is personal in nature and covers only taxes for
ABC Corp. was organized &
which the taxpayer-grantee is directly liable. The sales tax is a tax on the seller
and was granted such Tax Cov
who is not exempt from taxes. Since XYZ Inc. is directly liable for the sales tax Income
2 incentive. In the course of Exe erag
and no tax exemption privilege is ever given to him, therefore, its claim that Taxatio 2004
9 business, ABC Corp. mpti e;
the sale is tax exempt is not tenable. A tax exemption is construed in n
purchased mechanical ons Pro
strictissimi juris and it can not be permitted to exist upon vague implications
equipment from XYZ Inc. per
(Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil 466 [1926]).
Normally, the sale is subject Part
to a sales tax.a.) XYZ Inc. y
claims, however, that since
it sold the equipment to
ABC Corp. which is tax
exempt, XYZ should not be
liable to pay the sales tax. Is
this claim tenable? (5%)
As an incentive for
investors, a law was passed Nat
giving newly established ure
companies in certain &
B. No. The claim of ABC Corp. is not meritorious. Although the tax was shifted
economic zone exemption Tax Cov
to ABC Corp. by the seller, what is paid by it is not a tax but part of the cost it Income
3 from all taxes, duties, fees, Exe erag
has assumed. Hence, since ABC Corp. is not a taxpayer, it has no capacity to Taxatio 2004
0 imposts and other charges mpti e;
file a claim for refund. The taxpayer who can file a claim for refund is the n
for a period of three years. ons Pro
person statutorily liable for the payment of the tax.
ABC Corp. was organized per
and was granted such Part
incentive. In the course of y
business, ABC Corp.
 purchased mechanical
equipment from XYZ Inc.
Normally, the sale is subject
to a sales tax.

b.) Assume arguendo that

XYZ had to and did pay the
sales tax. ABC Corp. later
found out, however, that
XYZ merely shifted or
passed on to ABC the
amount of the sales tax by
increasing the purchase
price. ABC Corp. now claims
for a refund from the
Bureau of Internal Revenue
in an amount
corresponding to the tax
passed on to it since it is tax
exempt. Is the claim of ABC
Corp. meritorious? (5%)
3 For failure to comply with No. As a general rule, stockholders cannot be held personally liable for the General Corp Effe 2004
1 certain corporate unpaid taxes of a dissolved corporation. The rule prevailing under our Principl orat ct of
requirements, jurisdiction is that a corporation is vested by law with a personality that is es of e Diss
the stockholders of ABC separate and distinct from those of the persons composing it (Sunio v. NLRC, Taxatio Exist oluti
Corp. were notified by the 127 SCRA 390{1984]}. n ence on
Securities and Exchange NOTE: additional point should be given to the examinee if he answers in the
Commission that the following that: However, stockholders may be held liable for the unpaid taxes
corporation of a dissolved corporation if it appears that the corporate assets have passed
would be subject to into their hands (Tan Tiong Bio v. CFR, 4 SCRA 986 [1962]). Likewise, when
involuntary dissolution. The stockholders have unpaid subscriptions to the capital of the corporation they
stockholders did not do can be made liable for unpaid taxes of the corporation to the extent of their
anything to comply with the unpaid subscriptions.
requirements, and the
 corporation was dissolved.
Can the
stockholders be held
personally liable for the
unpaid taxes of the
dissolved corporation?
Explain briefly. (5%)
3 After the tax assessment Yes. The Commissioner has the power to accept the offer of compromise if the Judicial Com Lega 2004
2 had become final and financial position of the taxpayer clearly demonstrates a clear inability to pay Remedi pro lity
unappealable, the the tax (Section 204, NIRC). As represented by NX in his offer, only 50% of the es mise
Commissioner of Internal judgment award is all he could really afford. This is an offer for compromise
Revenue initiated the filing based on financial incapacity which the Commissioner shall not accept unless
of a civil action to collect accompanied by a waiver of the secrecy of bank deposits (Section 6[F}, NIRC).
the tax due from NX. After The waiver will enable the Commissioner to ascertain the financial position of
several years, a decision the taxpayer, although the inquiry need not be limited only to the bank
was rendered by the court deposits of the taxpayer but also as to his financial position as reflected in his
ordering NX to pay the tax financial statements or other records upon which his property holdings can be
due plus penalties and ascertained.If indeed, the financial position of NX as determined by the
surcharges. The judgment Commissioner demonstrates a clear inability to pay the tax, the acceptance of
became final and the offer is legal and ethical because the ground upon which the compromise
executory, but attempts to was anchored is within the context of the law and the rate of compromise is
execute the judgment well within and far exceeds the minimum prescribed by law which is only 10%
award were futile. of the basic tax assessed.
Subsequently, NX offered
the Commissioner a
compromise settlement of
50% of the judgment
award, representing that
this amount is all he could
really afford. Does the
Commissioner have the
power to accept the
compromise offer? Is it
legal and ethical? Explain
 briefly. (5%)
RAM got married to LISA
last January 2003. On
November
30, 2003, LISA gave birth to
twins. Unfortunately,
however, LISA died in the
course of her delivery. Due
to complications, one of the
twins also died on RAM should indicate "(b) married" as his civil status in
Mar
December 15, preparing his Income Tax Return for the year 2003. The death of his wife Pers
Income ried
3 2003. during the year will not change his status because should the spouse die onal
Taxatio Indi 2004
3 during the taxable year, the taxpayer may still claim the same exemptions Inco
n vidu
In preparing his Income Tax (that of being married) as if the spouse died at the close of such year (Section me
al
Return (ITR) for the year 35/Cj, NIRC).
2003, what should RAM
indicate in the ITR as his
civil
status: (a) single; (b)
married; (c) Head of the
family; (d)
widower; (e) none of the
above? Why? Reason. (5%)
OXY is the president and No. The premium is not deductible because it is not an ordinary business
chief executive officer of expense. The term "ordinary" is used in the income tax law in its common
ADDComputers, Inc. When significance and it has the connotation of being normal, usual or customary Ordi
OXY was asked to join (Deputy v. Du Pont, 308 US 488 [1940]). Paying premiums for the insurance of nary
thegovernment service as a person not connected to the company is not normal, usual or Income Ded Busi
3
director of a bureau under customary.Another reason for its non-deductibility is the fact that it can be Taxatio uctio ness 2004
4
theDepartment of Trade considered as an illegal compensation made to a government employee. This n ns Exp
and Industry, he took a is so because if the insured, his estate or heirs were made as the beneficiary ens
leave ofabsence from ADD. (because of the requirement of insurable interest), the payment of premium es
Believing that its business will constitute bribes which are not allowed as deduction from gross income
outlook,goodwill and (Section 34[A][l][c], NIRC).On the other hand, if the company was made the
 opportunities improved
with OXY in
thegovernment, ADD
proposed to obtain a policy
of insuranceon his life. On
ethical grounds, OXY
objected to theinsurance beneficiary, whether directly or indirectly, the premium is not allowed as a
purchase but ADD deduction from gross income (Section 36[A}14], NIRC).
purchased the policy
anyway.Its annual premium
amounted to P100,000. Is
said premium deductible by
ADD Computers, Inc.?
Reason. (5%)
3 VCC is the administrator of No. VCC's contention is not correct. The approval of the probate court is not Estate Juris Pay 2004
5 the estate of his father necessary. Payment of estate taxes is a condition precedent for the Tax dicti men
NGC, in distribution of the properties of the decedent and the collection of estate on t vs.
the estate proceedings taxes is executive in nature for which the court is devoid of any jurisdiction. Pro
pending before the MM Hence, the approval of the court, sitting in probate, or as a settlement tribunal bate
Regional is not a mandatory requirement in the collection of estate taxes (Marcos H v. Proc
Trial Court. Last year, he Court of Appeals, 273 SCRA 47 [1997]). eedi
received from the ng
Commissioner
of Internal Revenue a
deficiency tax assessment
for the
estate in the amount of
P1,000,000. But he ignored
the
notice. Last month, the BIR
effected a levy on the real
properties of the estate to
pay the delinquent tax. VCC
filed a motion with the
 probate court to stop the
enforcement and collection
of the tax on the ground
that the BIR should have
secured first the approval
of the probate court, which
had jurisdiction over the
estate, before levying on its
real properties. Is VCC's
contention correct? (5%)
RR disputed a deficiency tax
assessment and upon
receiptof an adverse
decision by the
RR should file a motion for injunction with the Court of Tax Appeals to stop
Commissioner of
the administrative collection process. An appeal to the CTA shall not suspend
InternalRevenue, filed an
the enforcement of the tax liability, unless a motion to that effect shall have
appeal with the Court of Defi
been presented in court and granted by it on the basis that such collection will
Tax Appeals.While the cien
jeopardize the interest of the taxpayer or the Government (Pirovano v. CIR, 14 Judicial Asse
3 appeal is pending, the BIR cy in
SCRA 832 [1965]).The CTA is empowered to suspend the collection ofinternal Remedi ssme 2004
6 served a warrant oflevy on Asse
revenue taxes and customs duties in cases pending appeal only when: (1) in es nt
the real properties of RR to men
the opinion of the court the collection by the BIR will jeopardize the interest of
enforce the collectionof the t
the Government and/or the taxpayer; and (2) the taxpayer is willing to deposit
disputed tax. Granting
the amount being collected or to file a surety bond for not more than double
arguendo that the BIR
the amount of the tax to be fixed by the court (Section 11, JR.A. No. 1125).
canlegally levy on the
properties, what could RR
do to stop the process?
Explain briefly. (5%)
On March 12, 2001, REN The appeal was not filed on time. The two-year period of limitation for filing a
Clai Prec
paid his taxes. Ten months cliam for refund is not only a limitation for pursuing the claim at the
Tax ms ripti
3 later, administrative level but also a limitation for appealing the case to the Court of
Remedi for ve 2004
7 he realized that he had Tax Appeals. The law provides that "no suit or proceeding shall be filed after
es Refu Peri
overpaid and so he the expiration of two years from the date of the payment of the etax or
nd od
immediately filed a claim penalty regardless of any supervening cause that may arise after payment
for refund with the
Commissioner of Internal
Revenue.

On February 27, 2003, he

(Section 229, NIRC). Since the appeal was only made on March 24, 2003, more
received the decision of the
than two years had already elapsed from the time the taxes were paid on
Commissioner denying
March 12, 2003. Accordingly, REN had lost his judicial remedy because of
REN's claim for refund. On
prescription.
March 24, 2003, REN filed
an appeal with the Court of
Tax Appeals. Was his appeal
filed on time or not?
Reason. (5%)

A law was passed
exempting doctors and
lawyers from theoperation
of the value added tax.
Other
professionalscomplained
and filed a suit questioning
3 the law for
8 beingdiscriminatory and
violative of the equal
protection clauseof the
Constitution since
complainants were not
given the same exemption.
Is the suit meritorious or
not? Reasonbriefly. (5%)
State and explain the basis
of dutiable value of an
1 imported article subject to
an ad valorem tax under
the Tariff and Customs
B. Yes, the suit is meritorious. The VAT is designed foreconomic efficiency;
hence, should be neutral to those who belong to the same class. Professionals
are a class of taxpayers by themselves who, in compliance with the rule of
equality of taxation, must be treated alike for tax purposes.Exempting lawyers
and doctors from a burden to which other professionals are subjected will
make the law discriminatory and violative of the equal protection clause of the
Constitution. While singling out a class for taxation purposes will not infringe
upon this constitutional limitation (Shell v. Vano, 94 Phil. 389 [1954]), singling
out a taxpayer from a class will no doubt transgress the constitutional
limitation (Ormoc Sugar Co. Inc., v. Treasurer of Ormoc City, 22 SCRA 603
[1968]). Treating doctors and lawyers as a different class of professionals will
not comply with therequirements of a reasonable, hence valid classification,
because the classification is not based upon substantial distinction which Con
Value- Exe
makes real differences. The classification does not comply with the stitu
Added mpti 2004
requirement that it should be germane to the purpose of the law either. tion
Tax on
(Pepsi-Cola Bottling Co., Inc. v. City of Butuan, 24 SCRA 789 [1968]).ANOTHER ality
ANSWER:No. The suit is not meritorious. The equal protection clause of the
Constitution merely requires that all persons subjected to legislation shall be
treated alike, under like circumstances and conditions, both in the privileges
conferred and in the liabilities imposed. The equality in taxation rule is not
violated if classifications or distinctions are made as long as the same are
based on reasonable and substantial differences. {Pepsi-Cola Bottling Co., Inc.
v. City of Butuan, 24 SCRA 789 [1968]).In the instant case, the professions of
doctors and lawyers are not principally aimed at earning money but for the
service of the people. The exemption granted to doctors and lawyers from the
operation of the VAT is justified, as it is not discriminatory against the other
professionals because they have reasonable and substantial differences in the
conduct of their professions.
The basis of dutiable value of an imported article subject to an ad valorem tax Class Ordi
Tariff
under the Tariff and Customs Code is its TRANSACTION VALUE. (Sec. 201[A], ifica nary
and
Tariff and Customs Code, as amended by R.A. No. 9135) If such value could not tion / 2005
Custom
be determined, then the following values are to be utilized in their sequence: of regu
s
Transaction value of identical goods (Sec. 201[B]); Transaction value of duti lar
 sirdondee@gmail.com 72 of 73 similar goods (Sec. 201[C]); Deductive value
duti
Code. (Sec. II.E.1, CA.O. No. 4-2004); Computed value (Sec., II.F.l, C.A.O. No. 1- es
es
20040) and Fallback value. (Sec. 201[F]) (UP; PALS)
The distinctions between countervailing duty and dumping duty are the
following: (1) Basis: The countervailing duty is imposed whenever there is
granted upon the imported article by the country of origin a specific subsidy
Class
upon its production, manufacture or exportation and this results or threatens
Tariff ifica Spe
injury to local industry while the basis for the imposition of dumping duty is
Distinguish countervailing and tion cial
2 the importation and sale of imported items at below their normal value 2005
duty from dumping duty. Custom of duti
causing or likely to cause injury to local industry. (2) Amount: The
s duti es
countervailing duty imposed is equivalent to the value of the specific subsidy
es
while the dumping duty is equivalent to the margin of dumping which is equal
to the difference between the export price to the Philippines and the normal
value of the imported article. (UP; PALS)
No, Jacob is not liable for taxes on his personal computer and the car because
he is tax-exempt by law. He has met the following requirements for
Gen
exemption under P.D. No. 922 (1976): a) b) c) tour of duty; and d) He has not
eral Imp
availed of the tax exemption for the past four (4) years. He was a military
Jacob, after serving a 5-year rule: orta
attache assigned to Jakarta; He has served abroad for not less than two (2)
tour of duty as military all tion
years; He is returning to the Philippines after serving his He is entitled to tax
attaché in Jakarta, returned impo by
exemption on his personal and household effects including a car; provided, a) Tariff
to the Philippines bringing rted the
The car must have been ordered or purchased prior to the receipt by the and
3 with him his personal articl gov 2005
Philippine mission or consulate in Jakarta of Jacob's recall order; b) the car is Custom
effects including a personal es ern
registered in Jacob's name; c) the exemption shall apply to the value of the s
computer and a car. Would are men
car; d) the exemption shall apply to the aggregate value of his personal and
Jacob be liable for taxes on subj t
household effects (including the personal computer) not exceeding thirty per
these items? Discuss fully. ect taxa
centum (30%) of the total amount received by Jacob as salary and allowances
to ble
during his assignment in Jakarta, but not to exceed four (4) years; e) Jacob
duty
must not have availed of the exemption more oftener than one every four
years. (Last par., Sec. 105, Tariff and Customs Code) (UP; PALS)
Can an assessment for a No, taxes cannot be the subject of set-off even when there is a final judgment Local Taxp Tax
local tax be the subject of for a sum of money against the local government making the assessment. The Govern ayer' pay
4 2005
set-off or compensation government and the taxpayer are not the "mutual creditors and debtors" of ment s er's
against a final judgment for each other who can avail of the remedy of compensation which Art. 1278 Taxatio rem rem
 (Civil Code) is sirdondee@gmail.com 13 of 73 referring to Republic of the
Philippines v. Mambulao Lumber Co., G.R. No. L-17725, February 28, 1962;
and Francia v. Intermediate Appellate Court, G.R. No. L-67649, June 28,1998.
There is, however, legal basis to state that an assessment for a local tax may edie
a sum of money obtained
be the subject of set-off or compensation against a final judgment for a sum of s
by the taxpayer against the
money obtained by the taxpayer against the local government by operation of (Loc edie
local government that n
law where the local government and the taxpayer are in their own right al s
made the assessment?
reciprocally debtors and creditors of each other, and that the debts are both Taxe
Explain. 
due and demandable. This is consistent with the ruling in Domingo v. Garlitos, s)
G.R. No. L-18994, June 29,1963, relying upon Arts. 1278 and 1279 of the Civil
Code, where these provisions were applied in relation to the national tax, and
should therefore be applicable to a local tax. (UP; PALS)
I would advise the lot owners that a city, even if it is outside Metro Manila,
may levy an annual tax on idle lands at the rate not exceeding five percent
(5%) of the assessed value of the property which shall be in addition to the
A city outside of Metro
basic real property tax. (Sec. 236, Local Government Code) I would likewise
Manila plans to enact an
advise them that the levy may apply to residential lots, regardless of land area,
ordinance that will impose
in subdivisions duly approved by proper authorities, the ownership of which Spe
a special levy on idle lands
has been transferred to individual owners who shall be liable for the Colle cial
located in residential
additional tax. (Last par., Sec. 237) The term "Idle Lands" means, land not Real ction Levi
subdivisions within its
devoted directly to any crop or to any definite purpose for at least one year Propert of es
territorial jurisdiction in
5 prior to the notice of expropriation, except for reasons other than force y real on 2005
addition to the basic real
majeure or any fortuitous event, but used to be devoted or is suitable to such Taxatio prop real
property tax. If the lot
crop or is contiguous to land devoted directly to any crop and does not include n erty pro
owners of a subdivision
land devoted permanently or regularly to other essential and more productive tax pert
located in the said city seek
purpose. (Philippine Legal Encyclopedia, by Sibal, 1986 Ed.) Finally, I would y
your legal advice on the
advise them to construct or place improvements on their idle lands by making
matter, what would your
valuable additions to the property or ameliorations in the land's conditions so
advice be? Discuss.
the lands would not be considered as idle. (Sec. 199[m]) In this manner their
properties would not be subject to the ad valorem tax on idle lands. (UP;
PALS)
Mr. Fermin, a resident of No. Makati City where Mr. Fermin has his main office may not require him to Local Spec Prof
6 Quezon City, is a Certified pay his professional tax as a lawyer. Mr. Fermin has the option of paying his Govern ific essi 2005
Public Accountant-Lawyer professional tax as a lawyer in Pasig City where he practices law or in Makati ment taxin onal
 engaged in the practice of
his two professions. He has
his main office in Makati g
City and maintains a branch pow
office in Pasig City. Mr. er of
Fermin pays his Local
professional tax as a CPA in City where he maintains his principal office. (Sec. 139[b], Local Government Taxatio Gov
tax
Makati City and his Code) (UP; PALS) n ern
professional tax as a lawyer men
in Pasig City. May Makati t
City, where he has his main Unit
office, require him to pay s
his professional tax as a
lawyer? Explain. 
Mr. Fermin, a resident of
Quezon City, is a Certified
Public Accountant-Lawyer
engaged in the practice of
Spec
his two professions. He has
ific
his main office in Makati
taxin
City and maintains a branch
g
office in Pasig City. Mr. No, the situs of the professional tax is the city where the professional Situ
Local pow
Fermin pays his practices his profession or where he maintains his principal office in case he s of
Govern er of
professional tax as a CPA in practices his profession in several places. The local government of Quezon City tax
7 ment Local 2005
Makati City and his has no right to collect the professional tax from Mr. Fermin as the place of coll
Taxatio Gov
professional tax as a lawyer residence of the taxpayer is not the proper situs in the collection of the ecte
n ern
in Pasig City. May Quezon professional tax. (UP; PALS) d
men
City, where he has his
t
residence and where he
Unit
also practices his two
s
professions, go after him
for the payment of his
professional tax as a CPA
and a lawyer? Explain.
 Taxable. Gross income includes "all income derived from whatever source" Sour
(Sec. 32[A], NIRC), which was interpreted as all income not expressly excluded ces
or exempted from the class of taxable income, irrespective of the voluntary or of
Explain briefly whether the Gros
involuntary action of the taxpayer in producing the income. Thus, the income Income inco
following items are taxable s
8 may proceed from a legal or illegal source such as from jueteng. Unlawful Taxatio me 2005
or non-taxable: Inco
gains, gambling winnings, etc. are subject to income tax. The tax code stands n subj
a) Income from jueteng;  me
as an indifferent neutral party on the matter of where the income comes ect
from. (Commissioner of Internal Revenue v. Manning, G.R. No. L-28398, to
August 6, 1975) (UP; PALS) tax
Sour
ces
Explain briefly whether the of
Taxable. Sale exchange or other disposition of property to the government of Gros
following items are taxable Income inco
real property is taxable. It includes taking by the government through s
9 or non-taxable: Taxatio me 2005
condemnation proceedings. (Gonzales v. Court of Tax Appeals, G.R. No. L- Inco
b) Gain arising from n subj
14532, May 26, 1965) (UP; PALS) me
expropriation of property;  ect
to
tax
Sour
ces
Explain briefly whether the Taxable only if the taxes were paid and claimed as deduction and which are of
Gros
following items are taxable subsequently refunded or credited. It shall be included as part of gross income Income inco
1 s
or non-taxable: in the year of the receipt to the extent of the income tax benefit of said Taxatio me 2005
0 Inco
c) Taxes paid and deduction. (Sec. 34[C][1], NIRC) Not taxable if the taxes refunded were not n subj
me
subsequently refunded;  originally claimed as deductions. (UP; PALS) ect
to
tax
1 Explain briefly whether the Taxable under the TAX BENEFIT RULE. Recovery of bad debts previously Income Gros Ded 2005
1 following items are taxable allowed as deduction in the preceding years shall be included as part of the Taxatio s ucti
or non-taxable: gross income in the year of recovery to the extent of the income tax benefit of n Inco ons
d) Recovery of bad debts said deduction. (Sec. 34[E][1], NIRC) This is sometimes referred as the me fro
previously charged off;  RECAPTURE RULES. (UP; PALS) m
Gro
ss
 Inco
me
Sour
ces
Explain briefly whether the of
Gros
following items are taxable Taxable. Since the car is used for personal purposes, it is considered as a Income inco
1 s
or non-taxable: capital asset hence the gain is considered income. (Sec. 32[A][3] and Sec. Taxatio me 2005
2 Inco
e) Gain on the sale of a car 39[A][1], NIRC) (UP; PALS) n subj
me
used for personal purposes. ect
to
tax
Sour
State with reasons the tax
ces
treatment of the following
of
in the preparation of annual Not to be reported in the annual income tax returns because the proceeds of Gros
Income inco
1 income tax returns: the life insurance are excluded from gross income. Proceeds of Life insurance s
Taxatio me 2005
3 a) Proceeds of life policies paid to the heirs or beneficiaries upon the death of the insured is an Inco
n subj
insurance received by a exclusion from gross income. (Sec.32[B][l],NIRC) (UP; PALS) me
ect
child as irrevocable
to
beneficiary;
tax
Sour
The 13th month pay not exceeding P30,000.00 shall not be reported in the
ces
State with reasons the tax income tax return because it is excluded from gross income (Sec. 32[B][7], [e],
of
treatment of the following NIRC) The amount of the 13th month pay in excess of P30,000.00 shall be Gros
Income inco
1 in the preparation of annual reported in the annual income tax return. De minimis benefits which do not s
Taxatio me 2005
4 income tax returns: b) exceed the ceilings are excluded from gross income, and not to be considered Inco
n subj
13th month pay and de for determining the P30,000.00 ceiling hence not reportable in the annual me
ect
minimis  benefits;  income tax return. (Sec. 2.78.1[A][3], R.R. 2-98 as amended by Sec. 2.33 [C]
to
and further amended by R.R. No. 8-2000) (UP; PALS)
tax
1 State with reasons the tax Dividends received by a domestic corporation from a domestic corporation Income Inco Sour 2005
5 treatment of the following shall not be subject to tax (Sec. 27[D][4], NIRC), hence, excluded from the Taxatio me ces
in the preparation of annual income tax return. (UP; PALS) n Tax of
income tax returns: inco
c) Dividends received by a me
 subj
domestic corporation from: 
ect
(i) another domestic
to
corporation;
tax
Sour
State with reasons the tax ces
treatment of the following of
Dividends received by a domestic corporation from a foreign corporation form
in the preparation of annual Income Inco inco
1 part of the gross income and are accordingly subject to net income tax, hence
income tax returns: Taxatio me me 2005
6 included in the annual ITR (Sec. 42[A][2][b], NIRC), hence, must be included in
c) Dividends received by a n Tax subj
the income tax return. (UP; PALS)
domestic corporation from:  ect
(ii) a foreign corporation;  to
tax
Sour
ces
State with reasons the tax
of
treatment of the following Both items are excluded from the income tax return: Interest income from any
Income Inco inco
1 in the preparation of annual currency bank deposit is considered passive income from sources within the
Taxatio me me 2005
7 income tax returns: d) Philippines and subject to final tax. Since it is subject final tax it is not to be
n Tax subj
Interest on deposits with  included in the annual ITR. (Sec. 24[B][1], NIRC) (UP; PALS)
ect
(i) BPI Family Bank;
to
tax
Sour
State with reasons the tax ces
treatment of the following of
in the preparation of annual Income Inco inco
1
income tax returns: d)   Taxatio me me 2005
8
Interest on deposits with  n Tax subj
(ii) a local offshore banking ect
unit of a foreign bank;  to
tax
State with reasons the tax Income realized from sale of capital assets is subject to the final withholding Income Inco Excl
1
treatment of the following tax at source and therefore excluded from the Income Tax Return (Sec. 24[C] Taxatio me ude 2005
9
in the preparation of annual and [D], NIRC); (UP; PALS) n Tax d in
 income tax returns: e)
the
Income realized from sale
sylla
of  (i) capital assets;
bus
and 
Sour
State with reasons the tax ces
treatment of the following of
in the preparation of annual Income Inco inco
2 Income realized from sale of ordinary assets is part of Gross Income, included
income tax returns: e) Taxatio me me 2005
0 in the Income Tax Return. (Sec. 32[A][3], NIRC) (UP; PALS)
Income realized from sale n Tax subj
of  (ii) ordinary ect
assets. to
tax
An international airline with
no landing rights in the
Yes. The income derived from the sales of tickets in the Philippines is
Philippines sold tickets in
considered taxable income of the international air carrier from Philippine
the Philippines for air Excl
sources. The source of income is the property, activity or service that
transportation. Is income ude
produced the income. The sale of tickets in the Philippines is the activity that Income Inco
2 derived from such sales of d in
produces the income. The absence of landing rights in the Philippines cannot Taxatio me 2005
1 tickets considered taxable the
alter the fact that revenues were derived from ticket sales within the n Tax
income of the said sylla
Philippines. (Commissioner of Internal Revenue v. Japan Air Lines, G.R. No.
international air carrier bus
60714, October 4, 1991 reiterating British Overseas Airways Corp., Air India
from Philippine sources
and American Airlines, Inc.) (UP; PALS)
under the Tax Code?
Explain.
JR was a passenger of an All amounts received from the airline company are excluded from gross
airline that crashed. He income. Under Sec. 32(B)(4) of the NIRC, amounts of damages received,
Excl
survived the accident but whether by suit or agreement, on account of personal injuries or sickness are
ude
sustained serious physical excluded from gross income. Since the amounts received from the airline Income Inco
2 d in
injuries which required company were received as damages by agreement on account of personal Taxatio me 2005
2 the
hospitalization for 3 injuries, all shall be excluded from JR's gross income. The amount of n Tax
sylla
months. Following P200,000.00, less the equivalent of not more than 10 days of vacation leave,
bus
negotiations with the airline received by JR from his employer, is subject to income tax under Sec. 2.78.1
and its insurer, an (a) (7) of R.R. No. 2-98. (UP; PALS)
 agreement was reached
under the terms of which JR
was paid the following
amounts: P500,000.00 for
his hospitalization;
P250,000.00 as moral
damages; and P300,000.00
for loss of income during
the period of his treatment
and recuperation. In
addition, JR received from
his employer the amount of
P200,000.00 representing
the cash equivalent of his
earned vacation and sick
leaves. 
Which, if any, of the
amounts he received are
subject to income tax?
Explain.
2 Company A decides to close All of the benefits are not taxable, hence they are not subject to withholding Income Inco Wit 2005
3 its operations due to tax under the Tax Code. Benefits received as a consequence of separation for Taxatio me hhol
continuing losses and to any cause beyond the control of the employees such as closure of business are n Tax ding
terminate the services of its excluded from gross income. (Sec. 32[B][6][b], NIRC in relation to Sec. 2[b][2], tax
employees. Under the R.R. 2-98) (UP; PALS)
Labor Code, employees
who are separated from
service for such cause are
entitled to a minimum of
one-half month pay for
every year of service.
Company A paid the
equivalent of one month
pay for every year of
 service and the cash
equivalent of unused
vacation and sick leaves as
separation benefits. 
Are such benefits taxable
and subject to withholding
tax under the Tax Code?
Decide with reasons.
The action of the parties constitutes tax evasion and exposes Josel to: (1)
Josel agreed to sell his DEFICIENCY FINAL INCOME TAX on the sale of real property in the Philippines
condominium unit to Jess classified as a capital asset. Under Sec. 24(D) of the NIRC, the final tax of six
for P2.5 Million. At the time percent (6%) shall be based on the gross selling price of P2.5 Million or zonal
Taxa
of the sale, the property value of P2.0 Million, whichever is higher, i.e., P2.5 Million; (2) FRAUD
tion
had a zonal value of P2.0 PENALTY amounting to 50% surcharge on the amount evaded (Sec. 248[B]
of
Million. Upon the advice of NIRC); and (3) DEFICIENCY INTEREST of 20% per annum on the deficiency.
resid
a tax consultant, the parties (Sec. 249[A][B], NIRC) ALTERNATIVE ANSWER: There is tax evasion
ent
agreed to execute two because of the concurrence of the following factors: 1) The payment of less
citize Tax
deeds of sale, one than that known by the taxpayer to be legally due, or the non-payment of tax
ns, atio
indicating the zonal value of when it is shown that a tax is due. It is evident that the parties that the tax due
Income non- n of
2 P2.0 Million as the selling should be computed based on the valuation of P2.5 million and not P2.0
Taxatio resid capi 2005
4 price and the other showing million; 2) An accompanying state of mind which is described as being "evil"
n ent tal
the true selling price of P2.5 on "bad faith," "willful," or "deliberate and not accidental." Despite the above
citize gain
Million. The tax consultant knowledge, the parties deliberately misrepresented the true basis of the sale;
ns, s
filed the capital gains tax and 3) A course of action or failure of action which is unlawful. This is shown
and
return using the deed of by the preparation of the two deeds of sale which showed different values.
resid
sale showing the zonal (Commissioner of Internal Revenue v. The Estate ofBenigno P, Tbda, Jr., G.R.
ent
value of P2.0 Million as the No. 147188, September 14, 2004) The tax evasion committed should result to
alien
selling price.  the imposition of a 50% fraud surcharge on the amount evaded (Sec. 248[B],
s
Discuss the tax implications NIRC) payment of the Deficiency Tax, and interest of 20% per annum on the
and consequences of the deficiency. (Sec. 249[A][B], NIRC) The parties may likewise be subject to
action taken by the parties. criminal prosecution for willfully failing to pay the tax, as well as for filing a
false and fraudulent return. (Sees. 254, 255 and 257, NIRC) (UP; PALS)
2 Is the approval of the court, No, the approval of the court, sitting in probate, or as a settlement tribunal Estate Estat Proc
2005
5 sitting as probate or estate over the deceased is not a mandatory requirement in the collection of estate Tax e edu
 re
for
Esta
te
Tax
taxes. There is nothing in the Tax Code, and in the pertinent remedial laws Settl
settlement court, required
that implies the necessity of the probate or estate settlement court's approval Tax eme
in the enforcement and
of the state's claim for estate taxes, before the same can be enforced and Retu nt :
collection of estate tax?
collected. (Marcos v. Court of Appeals, G.R. No. 120880, June 5, 1997) (UP; rn Coll
Explain.
PALS) ecti
on
of
Esta
te
Tax
2 Ralph Donald, an American All of the properties enumerated except (g), the proceeds from life insurance, Estate Com Wit 2005
6 citizen, was a top executive are included in the taxable gross estate in the Philippines. Ralph Donald is Tax posi h
of a U.S. company in the considered a resident alien for tax purposes since he is an American Citizen tion resp
Philippines until he retired and was a permanent resident of the Philippines at the time of his death. The of ect
in 1999. He came to like the value of the gross estate of a resident alien decedent shall be determined by Gros to
Philippines so much that including the value at the time of his death of all property, real or personal, s resi
following his retirement, he tangible or intangible, wherever situated. (Sec. 85, NIRC) The other item, (g) Estat den
decided to spend the rest proceeds from a life insurance policy, may also be included on the assumption e t
of his life in the country. He that it was Ralph Donald who took out the insurance upon his own life, alie
applied for and was granted payable upon his death to his estate. (Sec. 85[E], NIRC (UP; PALS) n
a permanent resident
status the following year. In
the spring of 2004, while
vacationing in Orlando,
Florida, USA, he suffered a
heart attack and died. At
the time of his death, he
left the following
properties:
 (a) bank deposits with
Citibank Makati and
Citibank Orlando, Florida; 
(b) a resthouse in Orlando,
Florida; (c) a
condominium unit in
Makati; (d)
shares of stock in the
Philippine subsidiary of the
U.S. Company where he
worked; (e)
shares of stock in San
Miguel Corp. and PLDT; (f)
shares of stock in Disney
World in Florida; (g)
U.S. treasury bonds; and
(h) proceeds from a life
insurance policy issued by a
U.S. corporation.
Which of the foregoing
assets shall be included in
the taxable gross estate in
the Philippines? Explain.
2 Is the approval of the court, No, the approval of the court, sitting in probate, or as a settlement tribunal Estate Estat Proc 2005
8 sitting as probate or estate over the deceased is not a mandatory requirement in the collection of estate Tax e edu
settlement court, required taxes. There is nothing in the Tax Code, and in the pertinent remedial laws Tax re
in the enforcement and that implies the necessity of the probate or estate settlement court's approval Retu for
collection of estate tax? of the state's claim for estate taxes, before the same can be enforced and rn Esta
Explain. collected. (Marcos v. Court of Appeals, G.R. No. 120880, June 5, 1997) (UP; te
PALS) Tax
Settl
eme
nt :
Coll
 ecti
on
of
Esta
te
Tax
Proc
edu
re
for
Esta
No, the approval of the court, sitting in probate, or as a settlement tribunal te
Is the approval of the court,
over the deceased is not a mandatory requirement in the collection of estate Estat Tax
sitting as probate or estate
taxes. There is nothing in the Tax Code, and in the pertinent remedial laws e Settl
3 settlement court, required Estate
that implies the necessity of the probate or estate settlement court's approval Tax eme 2005
1 in the enforcement and Tax
of the state's claim for estate taxes, before the same can be enforced and Retu nt :
collection of estate tax?
collected. (Marcos v. Court of Appeals, G.R. No. 120880, June 5, 1997) (UP; rn Coll
Explain.
PALS) ecti
on
of
Esta
te
Tax
3 Is the approval of the court, No, the approval of the court, sitting in probate, or as a settlement tribunal Estate Estat Proc 2005
4 sitting as probate or estate over the deceased is not a mandatory requirement in the collection of estate Tax e edu
settlement court, required taxes. There is nothing in the Tax Code, and in the pertinent remedial laws Tax re
in the enforcement and that implies the necessity of the probate or estate settlement court's approval Retu for
collection of estate tax? of the state's claim for estate taxes, before the same can be enforced and rn Esta
Explain. collected. (Marcos v. Court of Appeals, G.R. No. 120880, June 5, 1997) (UP; te
PALS) Tax
Settl
eme
nt :
Coll
 ecti
on
of
Esta
te
Tax
Yes, the deficiency tax assessment is a bar to a tax refund or credit. The
Taxpayer cannot be entitled to a refund and at the same time liable for a tax Taxp
Is a deficiency tax deficiency assessment for the same year. The deficiency assessment creates a ayer'
TAX
3 assessment a bar to a claim doubt as to the truth and accuracy of the Tax Return. Said Return cannot s Refu
REMEDI 2005
7 for tax refund or tax credit? therefore be the basis of the refund (Commissioner of Internal Revenue v. rem nd
ES
Explain.  Alltel [2002], citing Commissioner of Internal Revenue v. Court of Appeals, City edie
Trust Banking Corporation and Court of Tax Appeals, G.R. No. 106611, July 21, s
1994) (UP; PALS)
Com
pro
The following cases may still be compromised (R.R. 30-02 [2002]) because of
State and discuss briefly mise
the taxpayer's financial incapacity to pay the tax due or the assessment's Com
whether the following cases TAX and
3 doubtful validity: a) DELINQUENT ACCOUNTS may be compromised because pro
may be compromised or REMEDI Abat 2005
8 there is no showing that there is a duly-approved schedule of installment mis
may not be compromised: ES eme
payments; b) Cases under administrative protest, after issuance of the final e
a) Delinquent accounts;  nt of
assessment notice to the taxpayer, which are still pending. (UP; PALS)
Taxe
s
State and discuss briefly
Com
whether the following cases
pro
may be compromised or
mise
may not be compromised: Com
TAX and
3 b) Cases under pro
  REMEDI Abat 2005
9 administrative protest, mis
ES eme
after issuance of the final e
nt of
assessment notice to the
Taxe
taxpayer, which are still
s
pending; 
4 State and discuss briefly The following cases MAY NO LONGER BE COMPROMISED (R.R. 30-02 [2002]) TAX Com Com 2005
 because the taxpayer has not paid his taxes for reasons other than his
financial incapacity or the doubtful validity of the assessment: a) CRIMINAL pro
TAX FRAUD cases as may be determined by the Commissioner or his mise
whether the following cases authorized agents may not be compromised; b) CRIMINAL VIOLATIONS and
pro
may be compromised or ALREADY FILED IN COURT so that the taxpayer will not profit from his fraud REMEDI Abat
0 mis
may not be compromised: which would encourage tax evasion; and c) Cases where final reports of ES eme
e
c) Criminal tax fraud cases;  reinvestigation or reconsideration have been issued resulting in the reduction nt of
of the original assessment agreed to by the taxpayer when he signed the Taxe
required agreement form. The taxpayer is estopped from applying for a s
compromise. (UP; PALS)
Com
pro
State and discuss briefly
mise
whether the following cases Com
TAX and
4 may be compromised or pro
  REMEDI Abat 2005
1 may not be compromised: mis
ES eme
d) Criminal violations e
nt of
already filed in court; 
Taxe
s
State and discuss briefly
whether the following cases
may be compromised or Com
may not be compromised: pro
e) Cases where final reports mise
Com
of reinvestigation or TAX and
4 pro
reconsideration have been   REMEDI Abat 2005
2 mis
issued resulting in the ES eme
e
reduction of the original nt of
assessment agreed to by Taxe
the taxpayer when he s
signed the required
agreement form.
4 State the conditions Under Sec. 204(C), NIRC, the following conditions must be met: 1. There must TAX Taxp Refu
2005
3 required by the Tax Code be a written claim for refund filed by the taxpayer with the Commissioner. 2. REMEDI ayer' nd
 before the Commissioner of
s
Internal Revenue could The claim for refund must be a categorical demand for reimbursement. 3. The
rem
authorize the refund or claim for refund must be filed within two (2) years from date of payment of ES
edie
credit of taxes erroneously the tax or penalty regardless of any supervening cause. (UP; PALS)
s
or illegally received. 
Yes. A taxpayer is "any person subject to tax." Since, the withholding tax agent
Taxp
who is "required to deduct and withheld any tax" is made "personally liable
Does a withholding agent ayer'
for such tax" should the amount of the tax withheld be finally found to be less TAX
4 have the right to file an s Refu
than that required to be withheld by law, then he is a taxpayer. Thus, he has REMEDI 2005
4 application for tax refund? rem nd
sufficient legal interest to file an application for refund, of the amount he ES
Explain. edie
believes was illegally collected from him. (Commissioner of Internal Revenue
s
v. Procter & Gamble, G.R. No. 66838, December 2, 1991) (UP; PALS)
4 A taxpayer received a tax Yes, the final notice before seizure was in effect a denial of the taxpayer's TAX Taxp Asse 2005
5 deficiency assessment of request for reconsideration, not only was the notice the only response REMEDI ayer' ssm
P1.2 Million from the BIR received, its nature, content and tenor supports the theory that it was the ES s ent
demanding payment within BIR's final act regarding the request for reconsideration. (CIR v. Isabela rem
10 days, otherwise, it would Cultural Corporation, G.R. No. 135210, July 11, 2001) (UP; PALS) edie
collect through summary s
remedies. The taxpayer
requested for a
reconsideration stating the
grounds therefor. Instead
of resolving the request for
reconsideration, the BIR
sent a Final Notice Before
Seizure to the taxpayer.
May this action of the
Commissioner of Internal
Revenue be deemed a
denial of the request for
reconsideration of the
taxpayer to entitle him to
appeal to the Court of Tax
Appeals? 
 Decide with reasons.
Danilo, who is engaged in
the trading business,
entrusted to his accountant
the preparation of his
income tax return and the Danilo is liable for the deficiency tax as well as for the deficiency interest. He
Stat
payment of the tax due. should not be held liable for the fraud penalty because the accountant acted
utor
The accountant filed a beyond the limits of his authority. There is no showing in the problem that
y Civil
falsified tax return by Danilo signed the falsified return or that it was prepared under his direction. TAX
4 offe Pen
underdeclaring the sales On the other hand the accountant may be held criminally liable for violation of REMEDI 2005
6 nses altie
and overstating the the Tax Code when he falsified the tax return by underdeclaring the sale and ES
and s
expense deductions by overstating the expense deductions. If Danny's accountant is a Certified Public
pena
Danilo.  Accountant, his certificate as a CPA shall automatically be revoked or
lties
Is Danilo liable for the cancelled upon conviction. (UP; PALS)
deficiency tax and the
penalties thereon?
What is the liability, if any,
of the accountant? Discuss.
4 In 1995, the BIR filed before The DOJ is correct in ruling that an assessment of the tax deficiency of the TAX Taxp Asse 2005
7 the Department of Justice corporation is not a precondition to the filing of a criminal complaint. There is REMEDI ayer' ssm
(DOJ) a criminal complaint no need for an sirdondee@gmail.com 53 of 73 assessment so long as there is ES s ent
against a corporation and a prima facie showing of violation of the provisions of the Tax Code. After all, a rem
its officers for alleged criminal charge is instituted not to demand payment, but to penalize the tax edie
evasion of taxes. The payer for violation of the Tax Code. (Commissioner of Internal Revenue v. s
complaint was supported Pascor Realty and Development Corporation, G.R. No. 128315, June 29, 1999)
by a sworn statement of Furthermore, there is nothing in the problem that shows that the BIR in filing
the BIR examiners showing the case is also interested in collecting the tax deficiency. However, it is in
the computation of the tax error when it ruled that the joint affidavit of the BIR examiners may be
liabilities of the erring considered as an assessment of the tax liability of the corporation. The joint
taxpayer. The corporation affidavit showing the computation of the tax liabilities of the erring taxpayer is
filed a motion to dismiss not a tax assessment because it was not sent to the taxpayer, and does not
the criminal complaint on demand payment of the tax within a certain period of time. An assessment is
the ground that there has deemed made only when the BIR releases, mails or sends such notice to the
been, as yet, no assessment taxpayer. (Commissioner of Internal Revenue v. Pascor Realty and
 of its tax liability; hence,
the criminal complaint was
premature. The DOJ denied
the motion on the ground
that an assessment of the
tax deficiency of the
corporation is not a
precondition to the filing of
a criminal complaint and Development Corporation, G.R. No. 128315, June 29, 1999) (UP; PALS)
that in any event, the joint
affidavit of the BIR
examiners may be
considered as an
assessment of the tax
liability of the corporation. 
Is the ruling of the DOJ
correct? Explain.
Yes, the legislative body may enact laws even in the absence of a
constitutional provision because the power to tax is inherent in the
government and not merely a constitutional grant. The power of taxation is an
essential and inherent attribute of sovereignty belonging as a matter of right
to every independent government without being expressly granted by the
Describe the power of people. (Pepsi-Cola Bottling Company of the Philippines, Inc. v. Municipality of
taxation. May a legislative Tanauan, Leyte, G.R. No. L-31156, February 27,1976) Taxation is General Pow
Natu
body enact laws to raise the inherent power of a State to collect enforced proportional contribution to Principl er
4 re of
revenues in the absence of support the expenses of government. Taxation is the power vested in the es of of 2005
8 Taxa
a constitutional provision legislature to impose burdens or charges upon persons and property in order Taxatio taxa
tion
granting said body the to raise revenue for public purposes. The power to tax is so unlimited in force n tion
power to tax? Explain.  and so searching in extent that courts scarcely venture to declare it is subject
to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. (Tio v. Videogram Regulatory Board, G.R. No. L-
75697, June 18, 1987) So potent is the power to tax that it was once opined
that "the power to tax involves the power to destroy." (C.J. Marshall in
McCulloch v. Maryland, 4 Wheat, 316 4 L. Ed. 579, 607) (UP; PALS)
 The Roman Catholic Church
owns a 2-hectare lot in a
No. The Church cannot claim tax exemption on the entire land. Only the
town in Tarlac province.
southern side and middle part that are occupied by the Church and a convent
The southern side and
and the eastern side occupied by a school run by the Church itself are exempt,
middle part are occupied by
because such parts of the 2-hectare lot are actually, directly and exclusively
the Church and a convent,
used for religious and educational purposes. (Sec. 28[3], Art. VI, 1987 Exe
the eastern side by a school
Constitution; Sec. 234, Local Government Code) The southeastern side General Doct mp
run by the Church itself, the
occupied by some commercial establishment is not tax exempt. If real principl rines tion
4 southeastern side by some
property is used for one or more commercial purposes, it is not exclusively es of in fro 2005
9 commercial establishments,
used for the exempted purpose but is subject to taxation. 'Solely' is taxatio Taxa m
while the rest of the
synonymous with 'exclusively.' (Lung Center of the Philippines v. Quezon City, n tion taxa
property, in particular the
G.R. No. 144104, June 29, 2004) The property must be exclusively (solely) used tion
northwestern side, is idle or
for religious or educational purposes. Of course, it is apparent that the
unoccupied. 
northwestern side, which is idle or unoccupied is not "actually, directly and
May the Church claim tax
exclusively" used for religious or educational purposes, hence not exempt
exemption on the entire
from taxation. (UP; PALS)
land?
Decide with reasons.
An alien employee of the
Asian Development Bank
(ADB) who is retiring soon
has offered to sell his car to
you which he imported tax- The sales transaction is subject to value added tax (VAT) under Sec. 107(B) of Exe
free for his personal use. the NIRC, although this provision is expressly excluded from the coverage of General Doct mp
The privilege of exemption the 2005 bar exam. The proceeds from the sale are subject to income tax. The principl rines tion
5
from tax is granted to car is considered a capital asset of the retiring alien employee because he is es of in fro 2005
0
qualified personal use not engaged in the business of buying and selling cars. He therefore derived taxatio Taxa m
under the ADB Charter income, which should be reported in his income tax return. (Sees. 32 and 39, n tion taxa
which is recognized by the NIRC) (UP; PALS) tion
tax authorities. 
If you decide to purchase
the car, is the sale subject
to tax? Explain.
5 May taxes be the subject of No, taxes cannot be the subject of set-off or compensation for the following General Doct Set- 2005
 reasons: 1) The lifeblood theory requires that there should be no unnecessary
impediments to the collection of taxes to make available to the government
the wherewithal to meet its legitimate objectives; and 2) The payment of
taxes is not a contractual obligation but arises out of a duty to pay, and in
respect of the positive acts of government, regarding the making and
enforcing of taxes, the personal consent of the individual taxpayer is not
required. (Republic v. Mambulao Lumber Co., G.R. No. L-17725, February 28, Principl rines
set-off or compensation? 1962; Caltex v. Commission on Audit, G.R. No. 92585, May 8, 1992; and Philex es of in
1 off
Explain.  v. Commissioner of Internal Revenue, G.R. No. 125704, August 28, 1998) Taxatio Taxa
However, there is a possibility that set-off may arise, if the claims against the n tion
government have been recognized and an amount has already been
appropriated for that purpose. Where both claims have already become
overdue and demandable as well as fully liquidated. Compensation takes place
by operation of law under Art. 1200 in relation to Articles 1279 and 1290 of
the New Civil Code. (Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963)
(UP; PALS)
1 The Collector of Customs 1. Protest with the Collector of Customs (Sec. 2308, TCC) 2. Appeal to the Tariff Rem Tax 2006
issued an assessment for Commissioner of Customs (Sec. 2313, TCC). 3. Appeal to the CTA (RA 9282) 4. and edie pay
unpaid customs duties and Petition for Review on Certiorari Supreme Court (Rule 45 of the 1997 Rules of Custom s er
taxes on the importation of Civil Procedure (RA 9282). (UP; PALS) s
your client in the amount of
P980,000.00. Where will
you file your case to protect
your client's right? Choose
the correct courts/agencies,
observing their proper
hierarchy.
1. Court of Tax Appeals
2. Collector of Customs
3. Commissioner of
Customs
4. Regional Trial Court
5. Metropolitan Trial Court
6. Court of Appeals
 7. Supreme Court
The following properties are exempt from the real property tax (Section 234,
Local Government Code): (1) Real property owned by the REPUBLIC OF THE
PHILIPPINES or any of its political subdivisions except when the beneficial use Exe
thereof has been granted for consideration or otherwise to a taxable person; mp
Impo
(2) CHARITABLE INSTITUTIONS, churches, parsonages or convents appurtenant tion
Real sitio
thereto, mosques, non-profit or religious cemeteries, and all lands, buildings, fro
What properties are Propert n of
and improvements actually, directly and exclusively used for religious, m
2 exempt from the real y Real 2006
charitable or educational purposes; (3) All machineries and equipment that real
property tax? Taxatio Prop
are actually, directly and exclusively used by LOCAL WATER UTILITIES and pro
n erty
government-owned or controlled corporations engaged in the supply and pert
Tax
distribution of water and/or generation and transmission of electric power; (4) y
All real property owned by duly REGISTERED COOPERATIVES as provided for tax
under R.A. 6938; and (5) Machinery and equipment used for POLLUTION
CONTROL and ENVIRONMENTAL PROTECTION. (UP; PALS)
3 Quezon City published on I will resolve the issue in favor of Joachin. In auction sales of property for tax Real Colle Issu 2006
January 30, 2006 a list of delinquency, notice to delinquent landowners and to the public in general is Propert ction anc
delinquent real property an essential and indispensable requirement of law, the non-fulfillment of y of e of
taxpayers in 2 newspapers which vitiates the same (Tiongco v. Phil. Veterans Bank, G.R. No. 82782, Aug. Taxatio real noti
of general circulation and 5, 1992). The failure to give notice to the right person i.e., the real owner, will n prop ce
posted this in the main render an auction sale void (Tan v. Bantegui, G.R. No, 154027, October 24, erty of
lobby of the City Hall. The 2005; City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec. 22, 1997). (UP; PALS) tax deli
notice requires all owners nqu
of real properties in the list enc
to pay the real property tax y for
due within 30 days from the real
date of publication, pro
otherwise the properties pert
listed shall be sold at public y
auction. tax
Joachin is one of those pay
named in the list. He men
purchased a real property t
in 1996 but failed to
 register the document of
sale with the Register of
Deeds and secure a new
real property tax
declaration in his name. He
alleged that the auction
sale of his property is void
for lack of due process
considering that the City
Treasurer did not send him
personal notice. For his
part, the City Treasurer
maintains that the
publication and posting of
notice are sufficient
compliance with the
requirements of the law.If
you were the judge, how
will you resolve the issue?
Quezon City published on
January 30, 2006 a list of
delinquent real property
noti
taxpayers in 2 newspapers
ce
of general circulation and Colle
of
posted this in the main Real ction
Yes. The law requires that a notice of the auction sale must be properly sent to time
lobby of the City Hall. The Propert of
Joachin and not merely through publication (Tan v. Bantegui, G.R. No, 154027, for
4 notice requires all owners y real 2006
October 24,2005; Estate of Mercedes Jacob v. CA, G.R. No. 120435, Dec. 22, coll
of real properties in the list Taxatio prop
1997). (UP; PALS) ecti
to pay the real property tax n erty
on
due within 30 days from the tax
of
date of publication,
tax
otherwise the properties
listed shall be sold at public
auction.
 Joachin is one of those
named in the list. He
purchased a real property
in 1996 but failed to
register the document of
sale with the Register of
Deeds and secure a new
real property tax
declaration in his name. He
alleged that the auction
sale of his property is void
for lack of due process
considering that the City
Treasurer did not send him
personal notice. For his
part, the City Treasurer
maintains that the
publication and posting of
notice are sufficient
compliance with the
requirements of the
law.Assuming Joachin is a
registered owner, will your
answer be the same?
5 Congress enacts a law Yes. The term "Gross Receipts" is broad enough to include income Income Gros Defi 2006
imposing a 5% tax on the constructively received by the taxpayer. The amount withheld is paid to the Taxatio s nitio
gross receipts of common government on its behalf, in satisfaction of withholding taxes. The fact that it n Inco n
carriers. The law does not did not actually receive the amount does not alter the fact that it is remitted in me
define the term "gross satisfaction of its tax obligations. Since the income withheld is an income
receipts". Express owned by Express Transport, the same forms part of its gross receipts (CIR v.
Transport, Inc., a bus Solidbank Corp., G.R. No. 148191, November 25, 2003). (UP; PALS)
company plying the Manila-
Baguio route, has time
deposits with ABC Bank. In
 2005, Express Transport
earned P1 Million interest,
after deducting the 20%
final withholding tax from
its time deposits with the
bank. The BIR wants to
collect a 5% gross receipts
tax on the interest income
of Express Transport
without deducting the 20%
final withholding tax. Is the
BIR correct? Explain.
Charlie, a widower, has two
sons by his previous
Ded
marriage. Charlie lives with
ucti
Jane who is legally married
Charlie can claim the personal exemption of a Head of a Family or P25,000.00 ons
to Mario. They have a child Gros
provided that, at least one of his minor and not gainfully employed children is Income fro
named Jill. The children are s
6 unmarried and living with and dependent upon him for chief support (Tax Taxatio m 2006
all minors and not gainfully Inco
Reform Act, RA 8424, Chapter VII, Section 35[A]; BIR Revenue Regulation 02- n Gro
employed. me
98). (UP; PALS) ss
Inco
How much personal
me
exemption can Charlie
claim? Explain.
Charlie, a widower, has two
Ded
sons by his previous
ucti
marriage. Charlie lives with His children from his previous marriage who are legitimate children and his
ons
Jane who is legally married illegitimate child with Jane will all entitle him to additional personal exemption Gros
Income fro
to Mario. They have a child of P8,000.00 for each dependent, if apart from being minor and not gainfully s
7 Taxatio m 2006
named Jill. The children are employed, they are unmarried, living with and dependent upon Charlie for Inco
n Gro
all minors and not gainfully their chief support (Tax Reform Act, RA8424, Chapter VH, Section 35(A); BIR me
ss
employed.How much Revenue Regulation 02-98 (UP; PALS)
Inco
additional exemption can
me
Charlie claim? Explain.
 Gold and Silver Corporation
gave extra 14th month
bonus to all its officials and
employees in the total
amount of P75 Million.
When it filed its corporate
income tax return the I will disallow the expense. A bonus is ordinary and necessary where said
following year, the expenditure is (1) appropriate and helpful in the development of the
corporation declared a net taxpayers business (Martens, Law of Federal Income Taxation, Volume IV, p.
operating loss. When the 315) and (2) is normal in relation to the business of the taxpayer and the Ded
income tax return of the surrounding circumstances (p. 316, Ibid). To determine the reasonableness of ucti
corporation was reviewed the bonus it must be commensurate with services performed by the officials on
Gros
by the BIR the following and employees. Other factors to consider are whether the payment was made Income fro
s
8 year, it disallowed as item in good faith; the character of the taxpayer's business; the volume and Taxatio m 2006
Inco
of deduction the P75 amount of its net earnings; its locality; the type and extent of the services n Gro
me
Million bonus the rendered; the salary policy of the corporation; the size of the particular ss
corporation gave its officials business; the employees' qualification and contributions to the business Inco
and employees on the venture; and general economic conditions (Atlas Mining v. CIR, G.R. No. L- me
ground of 26911, January 27, 1981). However, since the business suffers from a net
unreasonableness. The operating loss, I will rule that the bonus is an unreasonable expense. (UP;
corporation claimed that PALS)
the bonus is an ordinary
and necessary expense that
should be allowed.
If you were the BIR
Commissioner, how will you
resolve the issue?
9 Vanishing deduction is (D) reduce his gross estate. Vanishing deduction or prop- erty previously taxed Estate Ded Vani 2006
availed of by taxpayers to: is one of the items of deduction allowed in computing the net estate of a Tax uctio shin
decedent (Section 86[A][2] and 86[B][2], NIRC). (UP; PALS) ns g
1. correct his accounting from Ded
records to reflect the actual estat ucti
deductions made 2. e ons
reduce his gross income
 3. reduce his output value-
added tax liability
4. reduce his gross estate
Choose the correct answer.
Explain.
Vanishing deduction is
availed of by taxpayers to:

1. correct his accounting

Ded Vani
records to reflect the actual
uctio shin
deductions made 2. (D) reduce his gross estate. Vanishing deduction or prop- erty previously taxed
1 Estate ns g
reduce his gross income is one of the items of deduction allowed in computing the net estate of a 2006
0 Tax from Ded
decedent (Section 86[A][2] and 86[B][2], NIRC). (UP; PALS)
estat ucti
3. reduce his output value-
e ons
added tax liability
4. reduce his gross estate
Choose the correct answer.
Explain.
Vanishing deduction is
availed of by taxpayers to:
1. correct his accounting
Ded Vani
records to reflect the actual
uctio shin
deductions made 2. (D) reduce his gross estate. Vanishing deduction or prop- erty previously taxed
1 Estate ns g
reduce his gross income is one of the items of deduction allowed in computing the net estate of a 2006
1 Tax from Ded
3. reduce his output value- decedent (Section 86[A][2] and 86[B][2], NIRC). (UP; PALS)
estat ucti
added tax liability 4.
e ons
reduce his gross estate
Choose the correct answer.
Explain.
Vanishing deduction is Ded Vani
(D) reduce his gross estate. Vanishing deduction or prop- erty previously taxed
1 availed of by taxpayers to: Estate uctio shin
is one of the items of deduction allowed in computing the net estate of a 2006
2 Tax ns g
decedent (Section 86[A][2] and 86[B][2], NIRC). (UP; PALS)
1. correct his accounting from Ded
 records to reflect the actual
deductions made 2.
reduce his gross income
estat ucti
3. reduce his output value-
e ons
added tax liability
4. reduce his gross estate
Choose the correct answer.
Explain.

Congress enacts a law

granting grade school and
high school students a 10%
discount on all school-
prescribed textbooks
purchased from any No, the bookstore cannot claim from the BIR a tax refund in lieu of tax credit. Taxp
bookstore. The law allows There is nothing in the law that grants a refund when the bookstore has no tax ayer'
TAX
1 bookstores to claim in full liabil- ity against which the tax credit can be used (CIR v. Central Luzon Drug, s Refu
REMEDI 2006
3 the discount as a tax credit. G.R. No 159647, April 15, 2005). A tax credit is in the nature of a tax rem nd
ES
exemption and in case of doubt, the doubt should be resolved in strictissimi edie
If in a taxable year a juris against the claimant. (UP; PALS) s
bookstore has no tax due
on which to apply the tax
credits, can the bookstore
claim from the BIR a tax
refund in lieu of tax credit?
Explain.
Congress enacts a law
A bookstore, closing its business due to losses, cannot claim reimbursement of Taxp
granting grade school and
the discount from the government. If the business continues to operate at a ayer'
high school students a 10% TAX
1 loss and no other taxes are due, thus compelling it to close shop, the credit s Refu
discount on all school- REMEDI 2006
4 can never be applied and will be lost altogether (CIR v. Central Luzon Drug, rem nd
prescribed textbooks ES
G.R. No. 159647, April 15, 2005). The grant of the discount to the taxpayer is a edie
purchased from any
mere privilege and can be revoked anytime. (UP; PALS) s
bookstore. The law allows
 bookstores to claim in full
the discount as a tax credit.

If a bookstore closes its

business due to losses
without being able to
recoup the discount, can it
claim reimbursement of the
discount from the
government on the ground
that without such
reimbursement, the law
constitutes taking of private
property for public use
without just compensation?
Explain.
1 On June 1, 2003, Global The denial for the request for reconsideration is the final decision of the CIR.. I TAX Taxp Asse 2006
5 Bank received a final notice would advise Global Bank to appeal the denial to the Court of Tax Appeals REMEDI ayer' ssm
of assessment from the BIR (CTA) within 30 days from receipt. I will further advise the bank to file a ES s ent
for deficiency documentary motion for injunction with the Court of Tax Appeals to enjoin the rem
stamp tax in the amount of Commissioner from enforcing the assessment pending resolution of the edie
P5 Million. On June 30, appeal. While an appeal to the CTA will not suspend the payment, levy, s
2003, Global Bank filed a distraint, and/or sale of any property of the taxpayer for the satisfaction of its
request for reconsideration tax liability, the CTA is authorized to give injunctive relief if the enforcement
with the Commissioner of would jeopardize the interest of the taxpayer, as in this case, where the
Internal Revenue. The assessment has not become final (Lascona Land Co. v, CIR, CTA Case No. 5777,
Commissioner denied the January 4, 2000; See also Revised CTA Rules, approved by the Supreme Court
request for reconsideration on December 15, 2005).
only on May 30, 2006, at
the same time serving on
Global Bank a warrant of
distraint to collect the
deficiency tax. If you were
its counsel, what will be
 your advice to the bank?
Explain.
The Commissioner of
Internal Revenue issued an
assessment for deficiency
As Counsel, I shall move to cancel the Assessment because of prescription. The Taxp
income tax for taxable year
three (3) year period of assessment for the Income Tax Returns of 2000 starts ayer'
2000 last July 31, 2006 in TAX Asse
1 on April 15, 2001 and ends on April 16, 2004. The assessment of July 31, 2006 s
the amount of P10 Million REMEDI ssm 2006
6 is beyond the three (3) year prescriptive period and can no longer have any rem
inclusive of surcharge and ES ent
legal, binding effect (Tax Reform Act, Title VIII, Chapter I, Section 203 [1997]). edie
interests. If the delinquent
(UP; PALS) s
taxpayer is your client,
what steps will you take?
What is your defense?
Gerry was being prosecuted
by the BIR for failure to pay
his income tax liability for
Calendar Year 1999 despite
several demands by the BIR
in 2002. The Information
No. The trial court can exercise jurisdiction. Prescription of a criminal action
was filed with the RTC only Judic Judi
begins to run from the day of the violation of the law. The crime was
last June 2006. Gerry filed a Judicial ial cial
1 committed when Gerry willfully refused to pay despite repeated demands in
motion to quash the Remedi proc proc 2006
7 2002. Since the information was filed in June 2006, the criminal case was
Information on the ground es edur edu
instituted within the five-year period required by law (Tupaz v. Ulep, G.R. No.
of prescription, the es res
127777, October 1, 1999; Section 281, NIRC). (UP; PALS)
Information having beer.
filed beyond the 5-year
reglementary period.
If you were the judge, will
you dismiss the
Information? Why?
Tax Pyramiding is the imposition of a tax upon another tax. It has no basis in General Doct Esca
1 What is tax pyramiding? fact or in law (People v. Sandiganbayan, G.R. No. 152532, August 16, 2005). principl rines pe
2006
8 What is its basis in law? There is also tax pyramiding when sales taxes are incorrectly applied to goods es of in fro
several times from production to final sale, thus, shifting the tax burden to the taxatio Taxa m
 taxa
tion:
Tax
ultimate consumer. (UP; PALS) n tion
pyra
midi
ng
1 1. The Constitution The provision exemptions charitable institutions and religious institutions General Doct Exe 2006
9 provides "charitable from (d) REAL PROPERTY TAXES only. The exemption is only for taxes assessed principl rines mp
institutions, churches, as property taxes, as distinguished from excise taxes (CIR v. CA, CTA & YMCA, es of in tion
parsonages or convents G.R. No. 124043, October 14, 1998; Lladoc v. Commissioner of Internal taxatio Taxa fro
appurtenant thereto, Revenue, L-19201, June 16,1965). (UP; PALS) n tion m
mosques, and non- profit taxa
cemeteries and all lands, tion
buildings, and
improvements actually,
directly and exclusively
used for religious,
charitable or educational
purposes shall be exempt
from taxation." This
provision exempts
charitable institutions and
religious institutions from
what kind of taxes? Choose
the best answer. Explain.
a. from all kinds of taxes,
i.e., income, VAT, customs
duties, local taxes and real
property tax
b. from income tax only
c. from value-added tax
only d.
from real property tax only
e. from capital gains tax
 only
Congress enacts a law
granting grade school and
high school students a 10%
discount on all school-
prescribed textbooks
No. Tax credit which reduces the tax liability is different from a tax deduction
purchased from any General Doct
which merely reduces the tax base. Since the law allowed the bookstores to Pow
bookstore. The law allows principl rines
2 claim in full the discount as a tax credit, the BIR is not allowed to expand or er
bookstores to claim in full es of in 2006
0 contract the legislative mandate (CIR v. Bicolandia Drug Corp., G.R. No. of
the discount as a tax credit. taxatio Taxa
148083, July 21, 2006; CIR v. Central Luzon Drug Corp., G.R. No. 159647, April BIR
n tion
15, 2005). (UP; PALS)
Can the BIR require the
bookstores to deduct the
amount of the discount
from their gross income?
Explain.
Mr. Abraham Eugenio, a
pawnshop operator, after
having been required by
the Revenue District Officer
to pay value added tax Yes. The RMO is in reality a ruling of the Commissioner in implementing the
General Doct
pursuant to a Revenue provisions of the Tax Code on the taxability of pawnshops. Jurisdiction to Pow
principl rines
2 Memorandum Order (RMO) review rulings of the Commissioner is lodged with the Court of Tax Appeals er
es of in 2006
1 of the Commission.er of and not with the Regional Trial Court (CIR v. Josefina Leal, G.R. No. 113459, of
taxatio Taxa
Internal Revenue, filed with November 18, 2002; Tax Reform Act, RA 8424, Title I, Sec. 4 [1997]). (UP; BIR
n tion
the Regional Trial Court an PALS)
action questioning the
validity of the RMO.
If you were the judge, will
you dismiss the case?
The aspects of taxation are: (1) LEVYING — the act of the legislature in General Stag Levy
Enumerate the 3 stages or
2 choosing the persons, properties, rights or privileges to be subjected to principl es of ing;
aspects of taxation. Explain 2006
2 taxation. (2) ASSESSMENT and COLLECTION — This is the act of executing the es of Taxa Asse
each.
law through the administrative agencies of government. (3) PAYMENT — the taxatio tion ssm
 ent
and
Coll
ecti
act of the taxpayer in settling his tax obligations. (UP; PALS) n
on;
Pay
men
t
Acc
ordi
DIRECT TAXES are demanded from the very person who should pay the tax
ng
and which he can not shift to another. An INDIRECT TAX is demanded from General
Kind to
Distinguish "direct taxes" one person with the expectation that he can shift the burden to someone else, principl
2 s of bur
from "Indirect taxes". Give not as a tax but as part of the purchase price. Examples of direct taxes are the es of 2006
3 taxe den
examples. income tax, the estate tax and the donor's tax. Examples of indirect taxes are taxatio
s or
the value-added tax, the percentage tax and the excise tax on exciseable n
inci
articles. (UP; PALS)
den
ce
The taxing power of the provinces, municipalities and cities is directly
conferred by the Constitution by giving them the authority to create their own pow
sources of revenue. The local government units do not exercise the power to er
tax as an inherent power or by a valid delegation of the power by the to
Congress, but pursuant to a direct authority conferred by the Constitution. crea
What is the nature of the
(Mactan Cebu International AirportAuthority v. Marcos, 261 SCRA 667[1996]; te
taxing power of the Local Local
NPC v. City of Cabanatuan, 401SCRA 259 [2003]). The local government reve
provinces, municipalities Govern Taxi
units exercise the power to tax by levying taxes, fees and charges consistent nue
1 and cities? How will the ment ng 2007
with the basic policy of local autonomy, and to assess and collect all these s
local government units be Taxatio auth
taxes, fees and charges which will exclusively accrue to them. The local exer
able to exercise their n ority
government units are authorized to pass tax ordinances (levy) and to pursue cise
taxing powers?
actions for the assessment and collection of the taxes imposed in the said thro
ordinances. (Section 129, and132, Local Government Code). (UP; PALS) ugh
LGU
NOTE: Local Government Code Provisions s
Sec. 129 Power to Create Sources of Revenue. - Eah Local government unit
 shall exercise its power to create its own sources of revenue and to levy taxes,
fees, and charges subject to the provisions herein, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively
to the local government units.

See also the ff. sections

Sec. 130 Fundamental Principles (like taxes, fees, charges and other
impositions shall not be unjust, excessive, oppressive, or confiscatory);

Sec. 133 Common Limitations on the Taxing Powers of Local Government

Units. (i.e. the taxing powers of LGU shall NOT exyend to the levy of the
following: [o] Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.)
The Local Government
The ordinance is valid. The Local Government Code explicitly authorizes
Code took effect on January
provincial governments, not withstanding any law or other special law, to
1, 1992. PLDT's legislative
impose a tax on business enjoying a franchise at the rate of 50% of 1% based
franchise was granted
on the gross annual receipts during the preceding year within the province.
sometime before 1992. Its Spec
(Section 137,LGC). PLDT is liable to the franchise tax levied by the province of
franchise provides that ific
Zamboanga del Norte. The tax exemption privileges on franchises granted
PLDT will only pay 3% taxin
before the passage of the Local Government Code are effectively repealed by
franchise tax in lieu of all g
the latter law. (PLDT v. City of Davao, 363 SCRA 522 [2001]).Note: Sec. 193
taxes. The legislative Local pow
LGC- Withdrawal of Tax Exemption Privileges- Unless otherwise provided in Fran
franchises of Smart and Govern er of
this Code, tax exemptions or incentives granted to, or presently enjoyed by all chis
2 Globe Telecoms were ment Local 2007
persons, whether natural or juridicall, INCLUDING government owned or e
granted in 1998. Their Taxatio Gov
controlled corporations, EXCEPT local water districts, cooperatives duly tax
legislative franchises state n ern
registered under RA No. 6938, non-stock and non-profit hospitalas and
that they will pay only 5% men
educational institutions, are hereby withdrawn upon the effectivity of this
franchise tax in lieu of all t
code.Smart and Globe, however, are not liable to the franchise tax imposed
taxes. The Province of Unit
under the provincial ordinance. The legislative franchises of Smart and Globe
Zamboanga del Norte s
were granted in 1998, long after the Local Government Code took effect .
passed an ordinance in
Congress is deemed to have been aware of the provisions of the earlier law,
1997 that imposes a local
when it granted the exemption. Accordingly, the latest will of the legislature
franchise tax on all
to grant tax exemption must be respected. (UP; PALS)
telecommunication
 companies operating within
the province. The tax is 50%
of 1% of the gross annual
receipts of the preceding
calendar year based on the
incoming receipts, or
receipts realized, within
territorial jurisdiction. Is the
ordinance valid? Are PLDT,
Smart and Globe liable to
pay franchise taxes?
Reason briefly.
3 ABC Corporation sold a real No. The RDO has no authority to use afair market value other than Income Taxa Tax 2007
property in Malolos, thatprescribed in the Tax Code. The fairmarket value prescribed for Taxatio tion atio
Bulacan to XYZ Corporation. thecomputation of any internal revenue taxshall be, whichever is the higher n of n of
The property has been of: (1)The fair market value as determined bythe Commissioner (referred to as dom capi
classified as residential and zonalvalue); or (2) the fair market value asshown in the schedule of values of estic tal
with a zonal valuation of theprovincial and city assessors (FMV pertax declaration). (Section 6(E), corp gain
P1, 000 per square meter. NIRC).The use of the fair market value appearing in a nearby bank's valuation orati s
The capital gains tax was list, therefore, is not allowed forpurposes of computing internal revenue ons
paid based on the zonal taxes. (UP; PALS)
value. The Revenue District
Officer (RDO), however,
refused to issue the
Certificate Authorizing
Registration for the reason
that based on his ocular
inspection the property
should have a higher zonal
valuation determined by
the Commissioner of
Internal Revenue because
the area is already a
commercial area.
 Accordingly, the RDO
wanted to make a
recomputation of the taxes
due by using the fair market
value appearing in a nearby
bank's valuation list which
is practically double the
existing zonal value. The
RDO also wanted to assess
a donor's tax on the
difference between the
selling price based on the
zonal value and the fair
market value appearing in a
nearby bank's valuation
list.Does the RDO have the
authority or discretion to
unilaterally use the fair
market value as the basis
for determining the capital
gains tax and not the zonal
value as determined by the
Commissioner of Internal
Revenue? Reason briefly.
ABC Corporation sold a real
property in Malolos, Taxa
Tax
Bulacan to XYZ Corporation. tion
atio
The property has been No. The difference in the supposedtaxable value cannot be legally subject of
Income n of
classified as residential and tothe donor’s tax, because the use of a fair market value other than that dom
4 Taxatio capi 2007
with a zonal valuation of prescribedby the Tax Code is not allowed forcomputing any internal revenue estic
n tal
P1, 000 per square meter. tax.(Section 6(E), NIRC). (UP; PALS) corp
gain
The capital gains tax was orati
s
paid based on the zonal ons
value. The Revenue District
 Officer (RDO), however,
refused to issue the
Certificate Authorizing
Registration for the reason
that based on his ocular
inspection the property
should have a higher zonal
valuation determined by
the Commissioner of
Internal Revenue because
the area is already a
commercial area.
Accordingly, the RDO
wanted to make a
recomputation of the taxes
due by using the fair market
value appearing in a nearby
bank's valuation list which
is practically double the
existing zonal value. The
RDO also wanted to assess
a donor's tax on the
difference between the
selling price based on the
zonal value and the fair
market value appearing in a
nearby bank's valuation
list.Should the difference in
the supposed taxable value
be legally subject to
donor's tax? Reason
briefly.
Z is a Filipino immigrant The pension is not taxable. The lawprovides that pensions received byresident Income Gros Excl
5 2007
living in the United States or nonresident citizens of thePhilippines from foreign governmentsagencies Taxatio s usio
 for more than 10 years. He
is retired and he came back
to the Philippines as a
balikbayan. Every time he
comes to the Philippines,
he stays here for about a
month. He regularly
receives a pension from his
former employer in the
United States, amounting ns
to US$1, 000 a month. fro
While in the Philippines, m
and other institutions, privateor public, are excluded from grossincome. Inco
with his pension pay from n gros
(Section 32 (B)(6)(c), NIRC). me
his former employer, he s
purchased three inco
condominium units in me
Makati which he is renting
out for P15, 000 a month
each.

Does the US$1, 000

pension become taxable
because he is now residing
in the Philippines? Reason
briefly.
Z is a Filipino immigrant Taxa
Yes. The purchase will be subject to the capital gains tax imposed on the sale
living in the United States tion Tax
of real property and the documentary stamp tax on conveyance of real
for more than 10 years. He of atio
property, if these units are acquired from individual unit owners or domestic
is retired and he came back Income resid n of
corporations who hold them as capital assets. (Section 24(D), 27(D)(5) and
6 to the Philippines as a Taxatio ent capi 2007
196, NIRC). If these properties, however were acquired from dealers and/or
balikbayan. Every time he n citize tal
lessors of real property the purchase will give rise to the imposition of the
comes to the Philippines, ns, gain
regular income tax, value added tax and documentary stamp tax. (Section 24-
he stays here for about a non- s
28 and 196, NIRC). (UP; PALS)
month. He regularly resid
 receives a pension from his
former employer in the
United States, amounting
to US$1, 000 a month.
ent
While in the Philippines,
citize
with his pension pay from
ns,
his former employer, he
and
purchased three
resid
condominium units in
ent
Makati which he is renting
alien
out for P15, 000 a month
s
each.Is his purchase of the
three condominium units
subject to any tax? Reason
briefly.
7 Antonia Santos, 30 years No. The estate tax is a tax on the privilege enjoyed by an individual in Income Inco Tax 2007
old, gainfully employed, is controlling the disposition of her properties to take effect upon her death. Taxatio me atio
the sister of Edgardo n Tax n of
Santos. She died in an The P10M is not a property existing as of the time of decedent’s death; hence, resi
airplane crash. Edgardo is a it cannot be said that she exercised control over its disposition. Since the den
lawyer and he negotiated privilege to transmit the property is not exercised by the decedent, the estate t
with the airline company tax cannot be imposed thereon. (Definition of Estate Tax p. 184, Vitug, citiz
and insurance company and Compendium of Tax Law and Jurisprudence, Third Revised Edition). (UP; PALS) ens,
they were able to a agree non
total settlement of P10 -
Million. This is what resi
Antonia would have earned den
as somebody who was t
gainfully employed. citiz
Edgardo was her only heir. ens,
and
Is the P10 Million subject resi
to estate tax? Reason den
briefly. t
 alie
ns
Tax
Antonia Santos, 30 years
atio
old, gainfully employed, is
n of
the sister of Edgardo
resi
Santos. She died in an
den
airplane crash. Edgardo is a
t
lawyer and he negotiated
citiz
with the airline company The P10M should not be reported byEdgardo as his income. The
ens,
and insurance company and amountreceived in a settlement agreement withthe airline company and
non
they were able to a agree insurancecompany is an amount received from theaccident insurance
Income Inco -
total settlement of P10 company is anamount received from the accidentinsurance covering the
8 Taxatio me resi 2007
Million. This is what passengers of theairline company and is in the nature ofcompensation for
n Tax den
Antonia would have earned personal injuries andfor damages sustained on a account ofsuch injuries,
t
as somebody who was which is excluded from thegross income of the recipient. (Section32(B)(4),
citiz
gainfully employed. NIRC). (UP; PALS)
ens,
Edgardo was her only heir.
and
resi
Should Edgardo report the
den
P10 Million as his income
t
being Antonia's only heir?
alie
Reason briefly.
ns
Nutrition Chippy
There is no legal basis for theassessment. The one sack of rice givento the
Corporation gives all its Sour
supervisors and managers areconsidered de minimis fringe
employees (rank and file, ces
benefitsconsidering that the value per sack doesnot exceed P1,000, hence
supervisors and managers) of
exempted from the fringe benefits tax. (Section 33,NIRC as implemented by Gros
one sack of rice every Income inco
RR No. 10-2000).The one sack of rice per month given tothe rank and file s
9 month valued at P800 per Taxatio me 2007
employees is, likewise,not subject to tax as part ofcompensation income. This Inco
sack. During an audit n subj
is a benefitof relatively small value intended topromote the health, me
investigation made by the ect
goodwill,contentment and efficiency of theemployee which will not
Bureau of Internal Revenue to
constitutetaxable income of the recipient. (Section2.78.1 (A)(3) of RR No. 2-
(BIR), the BIR assessed the tax
98). (UP; PALS)
company for failure to
 withhold the corresponding
withholding tax on the
amount equivalent to the
one sack of rice received by
all the employees,
contending that the sack of
rice is considered as
additional compensation
for the rank and file
employees and additional
fringe benefit for the
supervisions and managers.
Therefore, the value of the
one sack of rice every
month should be
considered as part of the
compensation of the rank
and file subject to tax. For
the supervisors and
managers, the employer
should be the one assessed
pursuant to Section 33 (a)
of the NIRC. Is there a legal
basis for the assessment
made by the BIR? Explain
your answer.
Weber Realty Company
which owns a three-hectare
Kind
land in Antipolo entered The JVA entered into between Weber and Prime does not create a separate Cor
Income s of
1 into a Joint Venture taxable entity. The joint venture is formed for the purpose of undertaking por
Taxatio taxp 2007
0 Agreement (JVA) with construction projects; hence, is not considered as a corporation for income tax atio
n ayer
Prime Development purposes. (Section 22 (B), NIRC). (UP; PALS) ns
s
Company for the
development of said parcel
 of land. Weber Realty as
owner of the land
contributed the land to the
Joint Venture and Prime
Development agreed to
develop the same into a
residential subdivision and
construct residential houses
thereon. They agreed that
they would divide the lots
between them.

Does the JVA entered into

by and between Weber
and Prime create a
separate taxable entity?
Explain briefly.
1 Weber Realty Company No. The allocation and distribution of the saleable lots to Weber and Prime is a Income Kind Cor 2007
1 which owns a three-hectare mere return of their capital contribution. The income tax and the expanded Taxatio s of por
land in Antipolo entered withholding tax is not due on a capital transaction because no income is n taxp atio
into a Joint Venture realized from it. (BIR Ruling No. DA-192- 2001, October 17, 2011). (UP; PALS) ayer ns
Agreement (JVA) with s
Prime Development
Company for the
development of said parcel
of land. Weber Realty as
owner of the land
contributed the land to the
Joint Venture and Prime
Development agreed to
develop the same into a
residential subdivision and
construct residential houses
thereon. They agreed that
 they would divide the lots
between them.Are the
allocation and distribution
of the saleable lots to
Weber and prime subject
to income tax and to
expanded withholding tax?
Explain briefly.
1 Weber Realty Company Yes. The sale by Weber and Prime of their respective shares to third parties is Income Kind Cor 2007
2 which owns a three-hectare a closed and completed transaction resulting in the realization of income, Taxatio s of por
land in Antipolo entered subject to income tax and to the expanded withholding tax. (BIR Ruling DA- n taxp atio
into a Joint Venture 228-2006). (UP; PALS) ayer ns
Agreement (JVA) with s
Prime Development
Company for the
development of said parcel
of land. Weber Realty as
owner of the land
contributed the land to the
Joint Venture and Prime
Development agreed to
develop the same into a
residential subdivision and
construct residential houses
thereon. They agreed that
they would divide the lots
between them.

Is the sale by Weber or

Prime of their respective
shares in the saleable lots
to third parties subject to
income tax and to
expanded withholding tax?
 Explain briefly.
Noel Santos is a very bright Tax
computer science graduate. atio
He was hired by Hewlett n of
Packard. To entice him to resi
accept the offer for den
employment, he was t
offered the arrangement citiz
that part of is ens,
compensation would be an No. The proceeds of life insurancepolicies paid to the heirs of non
insurance policy with a face beneficiariesupon the death of the insured are notincluded as part of the Income Inco -
1
value of P20 Million. The gross income ofthe recipient. (Section 32 (B)(1), NIRC).There is no income Taxatio me resi 2007
3
parents of Noel are made realized because nothing flows to Noel's parents other than a mere return of n Tax den
the beneficiaries of the capital, the capital being the life of the insured. (UP; PALS) t
insurance policy. citiz
ens,
Will the proceeds of the and
insurance form part of the resi
income of the parents of den
Noel and be subject to t
income tax? Reason alie
briefly. ns
1 Noel Santos is a very bright Yes. The premiums paid are ordinary and necessary business expenses of the Income Gros Ded 2007
4 computer science graduate. company. They are allowed as a deduction from gross income so long as the Taxatio s ucti
He was hired by Hewlett employer is not a direct or indirect beneficiary under the policy of insurance. n Inco on
Packard. To entice him to (Section 36 (A)(4), NIRC). Since the parents of the employee were made the me fro
accept the offer for beneficiaries, the prohibition for their deduction does not exist. (UP; PALS) m
employment, he was Gro
offered the arrangement ss
that part of is Inco
compensation would be an me
insurance policy with a face
value of P20 Million. The
parents of Noel are made
 the beneficiaries of the
insurance policy.Can the
company deduct from its
gross income the amount
of the premium? Briefly.
Gifts
The Congregation of the
in
Mary Immaculate donated
favo
a land a dormitory building Exe
r of
located along España St. in No. Gifts in favor of an educationaland/or charitable, religious, social welfare mpti
edu
favor of the Sisters of the corporation, or cultural institution, accredited non-government organization, ons
cati
Holy Cross, a group of nuns trust or philanthropic organization or research institution or organization are of
1 Donor’s onal
operating a free clinic and exempt from the donor’s tax, provided, that, not more gifts 2007
5 Tax /
high school teaching basic than 30% of the gifts are used for administration purposes. The donation from
char
spiritual values. being in the nature of a real property complies with the utilization don
itabl
requirement. (Section 101 (A)(3). NIRC). (UP; PALS) or's
e
Is the donation subject to tax
insti
donor's tax? Reason
tuti
Briefly.
ons
1 Remedios, a resident Yes. The Commissioner may allow an extension of time to pay the estate tax if Estate Estat Proc 2007
6 citizen, died on November the payment on the due date would impose undue hardship upon the Tax e edu
10, 2006. She died leaving estateor any of the heirs. The extension, in any case, will not exceed two years Tax re
three condominium units in if the estate is not under judicial settlement of five years if it is under Retu for
Quezon City valued at P5 judicialsettlement. The Commissioner may also require the posting of a bond rn Esta
Million each. Rodolfo was to secure the payment of the tax. (Section 91(B),NIRC). (UP; PALS) te
her only heir. He reported Tax
her death on December 5, Settl
2006 and filed the estate eme
tax, he asked the nt:
Commissioner of Internal Exte
Revenue to give him one nsio
year to pay the estate tax n of
due. The Commissioner Pay
approved the request for men
 extension of time provided
that the estate tax be
computed on the basis of
the value of the property at
the time of payment of the
tax.
t of
Does the Commissioner of Tax
Internal Revenue have the
power to extend the
payment of estate tax? If
so, what are the
requirements to allow such
extension?
1 Remedios, a resident No. The valuation of properties comprising the estate of a decedent isthe fair Estate Estat Basi 2007
7 citizen, died on November market as of the time of death. No other valuation date is allowed by law. Tax e s in
10, 2006. She died leaving (Section 88, NIRC). (UP; PALS)Sec. 88 (b) NIRC-Determination of the Value of Tax the
three condominium units in the EstateThe estate shall be appraised at the FMV as of the time of death. Retu valu
Quezon City valued at P5 HOWEVER, the appraised value of real property as of the time of death shall rn atio
Million each. Rodolfo was be, which ever is the highere of : (1) the FMV as determined by the n of
her only heir. He reported Commissioner; or(2) the FMV as shown in the schedule of values fixed by the pro
her death on December 5, Provincial and City Assessors pert
2006 and filed the estate y
tax, he asked the
Commissioner of Internal
Revenue to give him one
year to pay the estate tax
due. The Commissioner
approved the request for
extension of time provided
that the estate tax be
computed on the basis of
the value of the property at
the time of payment of the
 tax.Does the condition that
the basis of the estate tax
will be the value at the
time of the payment have
legal basis? Reason briefly.
Remedios, a resident
citizen, died on November
10, 2006. She died leaving
three condominium units in
Quezon City valued at P5
Million each. Rodolfo was
her only heir. He reported Proc
her death on December 5, edu
2006 and filed the estate re
tax, he asked the for
Commissioner of Internal Esta
Revenue to give him one Yes. The Commissioner may allow an extension of time to pay the estate tax if te
year to pay the estate tax the payment on the due date would impose undue hardship upon the Estat Tax
due. The Commissioner estateor any of the heirs. The extension, in any case, will not exceed two years e Settl
1 Estate
approved the request for if the estate is not under judicial settlement of five years if it is under Tax eme 2007
8 Tax
extension of time provided judicialsettlement. The Commissioner may also require the posting of a bond Retu nt:
that the estate tax be to secure the payment of the tax. (Section 91(B),NIRC). (UP; PALS) rn Exte
computed on the basis of nsio
the value of the property at n of
the time of payment of the Pay
tax. men
t of
Does the Commissioner of Tax
Internal Revenue have the
power to extend the
payment of estate tax? If
so, what are the
requirements to allow such
extension?
 Remedios, a resident
citizen, died on November
10, 2006. She died leaving
three condominium units in
Quezon City valued at P5
Million each. Rodolfo was
her only heir. He reported
her death on December 5,
2006 and filed the estate Basi
No. The valuation of properties comprising the estate of a decedent isthe fair
tax, he asked the s in
market as of the time of death. No other valuation date is allowed by law.
Commissioner of Internal Estat the
(Section 88, NIRC). (UP; PALS)Sec. 88 (b) NIRC-Determination of the Value of
Revenue to give him one e valu
1 the EstateThe estate shall be appraised at the FMV as of the time of death. Estate
year to pay the estate tax Tax atio 2007
9 HOWEVER, the appraised value of real property as of the time of death shall Tax
due. The Commissioner Retu n of
be, which ever is the highere of : (1) the FMV as determined by the
approved the request for rn pro
Commissioner; or(2) the FMV as shown in the schedule of values fixed by the
extension of time provided pert
Provincial and City Assessors
that the estate tax be y
computed on the basis of
the value of the property at
the time of payment of the
tax.Does the condition that
the basis of the estate tax
will be the value at the
time of the payment have
legal basis? Reason briefly.
Remedios, a resident Proc
citizen, died on November Yes. The Commissioner may allow an extension of time to pay the estate tax if edu
10, 2006. She died leaving the payment on the due date would impose undue hardship upon the Estat re
three condominium units in estateor any of the heirs. The extension, in any case, will not exceed two years e for
2 Estate
Quezon City valued at P5 if the estate is not under judicial settlement of five years if it is under Tax Esta 2007
0 Tax
Million each. Rodolfo was judicialsettlement. The Commissioner may also require the posting of a bond Retu te
her only heir. He reported to secure the payment of the tax. (Section 91(B),NIRC). (UP; PALS) rn Tax
her death on December 5, Settl
2006 and filed the estate eme
 tax, he asked the
Commissioner of Internal
Revenue to give him one
year to pay the estate tax
due. The Commissioner
approved the request for
extension of time provided nt:
that the estate tax be Exte
computed on the basis of nsio
the value of the property at n of
the time of payment of the Pay
tax. men
t of
Does the Commissioner of Tax
Internal Revenue have the
power to extend the
payment of estate tax? If
so, what are the
requirements to allow such
extension?
2 Remedios, a resident No. The valuation of properties comprising the estate of a decedent isthe fair Estate Estat Basi 2007
1 citizen, died on November market as of the time of death. No other valuation date is allowed by law. Tax e s in
10, 2006. She died leaving (Section 88, NIRC). (UP; PALS)Sec. 88 (b) NIRC-Determination of the Value of Tax the
three condominium units in the EstateThe estate shall be appraised at the FMV as of the time of death. Retu valu
Quezon City valued at P5 HOWEVER, the appraised value of real property as of the time of death shall rn atio
Million each. Rodolfo was be, which ever is the highere of : (1) the FMV as determined by the n of
her only heir. He reported Commissioner; or(2) the FMV as shown in the schedule of values fixed by the pro
her death on December 5, Provincial and City Assessors pert
2006 and filed the estate y
tax, he asked the
Commissioner of Internal
Revenue to give him one
year to pay the estate tax
due. The Commissioner
 approved the request for
extension of time provided
that the estate tax be
computed on the basis of
the value of the property at
the time of payment of the
tax.Does the condition that
the basis of the estate tax
will be the value at the
time of the payment have
legal basis? Reason briefly.
2 Remedios, a resident Yes. The Commissioner may allow an extension of time to pay the estate tax if Estate Estat Proc 2007
2 citizen, died on November the payment on the due date would impose undue hardship upon the Tax e edu
10, 2006. She died leaving estateor any of the heirs. The extension, in any case, will not exceed two years Tax re
three condominium units in if the estate is not under judicial settlement of five years if it is under Retu for
Quezon City valued at P5 judicialsettlement. The Commissioner may also require the posting of a bond rn Esta
Million each. Rodolfo was to secure the payment of the tax. (Section 91(B),NIRC). (UP; PALS) te
her only heir. He reported Tax
her death on December 5, Settl
2006 and filed the estate eme
tax, he asked the nt:
Commissioner of Internal Exte
Revenue to give him one nsio
year to pay the estate tax n of
due. The Commissioner Pay
approved the request for men
extension of time provided t of
that the estate tax be Tax
computed on the basis of
the value of the property at
the time of payment of the
tax.

Does the Commissioner of

 Internal Revenue have the
power to extend the
payment of estate tax? If
so, what are the
requirements to allow such
extension?
Remedios, a resident
citizen, died on November
10, 2006. She died leaving
three condominium units in
Quezon City valued at P5
Million each. Rodolfo was
her only heir. He reported
her death on December 5,
2006 and filed the estate Basi
No. The valuation of properties comprising the estate of a decedent isthe fair
tax, he asked the s in
market as of the time of death. No other valuation date is allowed by law.
Commissioner of Internal Estat the
(Section 88, NIRC). (UP; PALS)Sec. 88 (b) NIRC-Determination of the Value of
Revenue to give him one e valu
2 the EstateThe estate shall be appraised at the FMV as of the time of death. Estate
year to pay the estate tax Tax atio 2007
3 HOWEVER, the appraised value of real property as of the time of death shall Tax
due. The Commissioner Retu n of
be, which ever is the highere of : (1) the FMV as determined by the
approved the request for rn pro
Commissioner; or(2) the FMV as shown in the schedule of values fixed by the
extension of time provided pert
Provincial and City Assessors
that the estate tax be y
computed on the basis of
the value of the property at
the time of payment of the
tax.Does the condition that
the basis of the estate tax
will be the value at the
time of the payment have
legal basis? Reason briefly.
ABC Corporation won a tax The BIR has no valid justification to withhold the TCC. TAX Taxp
2 Refu
refund case for P50 Million. -Offsetting the amountof TCC against a potential tax liability is not allowed, REMEDI ayer' 2007
4 nd
Upon execution of the because both obligations are not yet fully-liquidated. While the amount of the ES s
 judgement and when trying
to get the tax Credit
Certificates (TCC)
representing the refund,
TCC has been determined; the amount of deficiency tax is yet to be
the Bureau of Internal
determined through the completion of the audit. (Philex Mining Corporation
Revenue (BIR) refused to
v.CIR, 294 SCRA 687 [1998]). (UP; PALS)
issue the TCC on the basis
of the fact that the rem
Compensation or Set-off Taxes (Art. 1278)
corporation is under audit edie
GR: Taxes are not subject to set-off or legal compensation
by the BIR and it has a s
XPN: Case of Domingo v. Garlitos (1963)
potential tax liability.
There can be legal compensation for tax purposes as long as all the requisite
under Article 1279 of the Civil Code are present. The claims of the taxpayer
Is there a valid justification
and the government
for the BIR to withhold the
issuance of the TCC?
Explain your answer
briefly.
2 XYZ Corporation, an export BIR rulings are administrative opinions issued by the Commissioner of General Doct BIR 2007
5 oriented company, was Internal Revenue interpretative of a provision of a tax law. They are usually Principl rines Ruli
able to secure a Bureau of rendered upon the request of taxpayers to clarify or interpret certain es OF in ngs;
Internal Revenue (BIR) provisions of a tax law or revenue regulations or other issuances of the BIR. Taxatio Taxa "Rul
ruling in June 2005 that They state the official position of the BIR to the specific queries raised by a n tion ings
exempts from tax the taxpayer. BIR rulings rendered by the BIR, like other administrative bodies, do of
importation some of its raw not partake of the character of legislative rules which require publication for First
materials. The ruling is of their effectivity. Copies thereof are furnished only to the parties involved in Imp
first impression, which the proceedings. (NIRC ANNOTATED - DE LEON)ALTERNATIVE ANSWER: They ressi
means the interpretations are the best guess of the moment and incidentally often contain such well- on"
made by the Commissioner considered and sound law, but the courts have held that they do not prevent
of Internal Revenue is one an entire change of front at any time and are merely advisory – sort of an
without established information service to the taxpayer. (Aban, Law of Basic Taxation in the
precedents. Subsequently, Philippines, p. 149 citing Quiazon and Lukban). (UP; PALS)
however, the BIR issued
another ruling which in
effect would subject to tax
 such kind of importation.
XYZ Corporation is
concerned that said ruling
may have a retroactive
effect, which means that all
their importations done
before the issuance of the
second ruling could be
subject to tax.What are BIR
rulings?
2 XYZ Corporation, an export A BIR ruling of first impression to be valid must not be against the law and it General Doct BIR 2007
6 oriented company, was must be issued only by the Commissioner of Internal Revenue. (Philippine Principl rines Ruli
able to secure a Bureau of Bank of Communications v. CIR, 302 SCRA 241 [1999]; Section 7, NIRC). (UP; es OF in ngs;
Internal Revenue (BIR) PALS) Taxatio Taxa "Rul
ruling in June 2005 that n tion ings
exempts from tax the of
importation some of its raw First
materials. The ruling is of Imp
first impression, which ressi
means the interpretations on"
made by the Commissioner
of Internal Revenue is one
without established
precedents. Subsequently,
however, the BIR issued
another ruling which in
effect would subject to tax
such kind of importation.
XYZ Corporation is
concerned that said ruling
may have a retroactive
effect, which means that all
their importations done
before the issuance of the
 second ruling could be
subject to tax.

What is required to make a

BIR ruling of first
impression a valid one?
2 XYZ Corporation, an export No. A BIR ruling cannot be given retroactive effect if its retroactive application General Doct BIR 2007
7 oriented company, was is prejudicial to the taxpayer. (Section 246, NIRC; CIR v. Court of Appeals et. Al. Principl rines Ruli
able to secure a Bureau of 267 SCRA 557 [1997]). ALTERNATIVE ANSWER: The general rule is that a BIR es OF in ngs;
Internal Revenue (BIR) ruling does not have a retroactive effect if giving it a retroactive application is Taxatio Taxa "Rul
ruling in June 2005 that prejudicial to the taxpayer. However, if the first ruling is tainted with either of n tion ings
exempts from tax the the following: (1) misstatement or omission of materials facts, (2) the facts of
importation some of its raw gathered by the BIR are materially different from the facts upon which the First
materials. The ruling is of ruling is based, or (3) the taxpayer acted in bad faith, a subsequent ruling can Imp
first impression, which have a retroactive application. (ABS-CBN Broadcasting Co. v. CTA & CIR, 08 ressi
means the interpretations SCRA 142 [1981]; Sec 246, NIRC). (UP; PALS)Note: Non-Retroactivity of on"
made by the Commissioner Rulings- Sec. 246 NIRCGeneral Rule: Any revocation, modification or reversal
of Internal Revenue is one of any of the rules and regulations rulings and circulars promulgated by the
without established Commissioner shall NOT be given retroactive application, if it will be
precedents. Subsequently, prejudicial to the taxpayers.Exceptions:1. Where the taxpayer deliberately
however, the BIR issued misstates or omits material facts from his return or any document; 2. where
another ruling which in the facts subsequently gathered by the BIR are materially different from the
effect would subject to tax facts on which the ruling is based; or3. where the taxpayer acted in bad faith
such kind of importation.
XYZ Corporation is
concerned that said ruling
may have a retroactive
effect, which means that all
their importations done
before the issuance of the
second ruling could be
subject to tax.Does a BIR
ruling have a retroactive
effect, considering the
 principle that tax
exemptions should be
interpreted strictly against
the taxpayer?
Tax
es
What kind of taxes, fees The following taxes, fees and charges are considered to be National Internal Con
General
and charges are considered Revenue Taxes under the National Internal Revenue Code: (A) Income tax; (B) Kind side
Principl
2 as National Internal Estate and donor’s taxes; (C) Value-added tax; (D) Other percentage taxes; (E) s of red
es OF 2007
8 Revenue Taxes under the Excise taxes; (F) Documentary stamp taxes; and Such other taxes as are or taxe as
Taxatio
National Internal Revenue hereafter may be imposed and collected by the Bureau of Internal Revenue. s NIR
n
Code (NIRC)? (Section 21, NIRC). (UP; PALS) C
Tax
es
1 JKL Corporation is a No. because domestic corporations importing used vehicles that are “stored, Value- VAT R.A. 2008
domestic corporation used or traded” within the Subic Naval Base Area enjoy an exemption from Added exe No.
engaged in the importation customs duties and VAT, provided they are registered with the SBMA (R.A. Tax mpt 709
and sale of motor vehicles 7096; Executive Secretary v. Southwing Heavy Industries, G.R. No. 164171, 20 trans 6
in the Philippines and is February2006). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW actio
duly registered with the SCHOOLS ns
Subic Bay Metropolitan
Authority ( SBMA ). In
December 2007, it
imported several second-
hand motor vehicles from
Japan and Korea, which it
stores in a warehouse in
Subic Bay. It sold these
motor vehicles in April
2008, to persons residing in
the customs territory. Are
the importations of motor
vehicles from abroad
subject to customs duties
 and value added taxes?
Explain. ( 4% )
JKL Corporation is a
domestic corporation
engaged in the importation
and sale of motor vehicles
in the Philippines and is
duly registered with the
Subic Bay Metropolitan
Authority ( SBMA ). In
December 2007, it
imported several second-
Duties and taxes must be paid upon release of the vehicle from Customs’ Requ Obli
hand motor vehicles from
custody. Custom duties for motor vehicles are based on the value being used irem gati
Japan and Korea, which it Tariff
by the Bureau for assessing customs duties. VAT is also based on the value ents ons
stores in a warehouse in and
2 being used by the Bureau for motor vehicles (Sec. 107[A] NIRC). Duties must of of 2008
Subic Bay. It sold these Custom
be paid to the Bureau of Customs. VAT must be paid to the Bureau of Internal impo imp
motor vehicles in April s
Revenue. UP LAW COMPLEX & PHILIPPINE ASSOCIATION rtati orta
2008, to persons residing in
OF LAW SCHOOLS on tion
the customs territory.

if they are taxable, when

must the duties and taxes
be paid? What are the
bases for and purposes of
computing customs duties
and VAT? To whom must
the duties and VAT be
paid? Explain. ( 3% )
William Antonio imported Yes, Under-declaration of value is a
into the Philippines a luxury ground for forfeiture (See Sec. 1206, Tariff Gov
Rem
car worth US$100,00. This Tariff and Customs Code; See also and ern
3 edie 2008
car was, however, declared Feeder International v. CA, G.R. No. Custom men
s
only for US$20,000 and 94262, 31 May 1991). UP LAW COMPLEX & PHILIPPINE ASSOCIATION s t
corresponding customs OF LAW SCHOOLS
 duties and taxes were paid
thereon. Subsequently, the
Collector of Customs
discovered the
underdeclaration and he
initiated forfeiture
proceedings of the
imported car.

a. may the Collector of

Customs declare the
imported car forfeited in
favor of the government?
Explain. ( 3% )
William Antonio imported
into the Philippines a luxury
car worth US$100,00. This
car was, however, declared
only for US$20,000 and
corresponding customs No, a forfeiture proceeding under tariffand customs laws in not penal in
duties and taxes were paid nature,the main purpose of which is to enforcethe administrative fines or
thereon. Subsequently, the forfeitureincident to unlawful importation ofgoods or their deliberate Tariff Gov
Rem
Collector of Customs possession. Thepenalty in seizure cases is distinct andseparate from the and ern
4 edie 2008
discovered the criminal liability thatmight be imposed against the indictedimporter or Custom men
s
underdeclaration and he possessor and both kinds ofpenalties may be imposed (Peo. v. CFI ofRizal, et s t
initiated forfeiture al., No. L-41686, 17 November1980).UP LAW COMPLEX & PHILIPPINE
proceedings of the ASSOCIATIONOF LAW SCHOOLS
imported car. Are
forfeiture proceedings of
goods illegally imported
criminal in nature? Explain
( 3% )
 The City of Manila enacted Twenty five percent (25%) of total salesor P2.5 million shall be taxed in
Spec
an ordinance, imposing a Cebuand 15% of total sales or P1.5 millionshall be taxed in Davao. For
ific
5% tax on gross receipts on theremaining 60% sales amounting to P6million which are recorded in
taxin
rentals of space in theprincipal office, 30% thereof or P1.8million is taxable in Quezon City
g
privately-owned public wherethe principal office is located and 70% orP4.2 million is taxable in Situ
Local pow
markets. BAT Corporation Marikina Citywhere the factory is located.Under the law, s of
Govern er of
questioned the validity of manufacturersmaintaining a branch or sales outletshall record the sale in the tax
5 ment Local 2008
the ordinance, stating that branch orsales outlet making the sale and pay thetax in the city or coll
Taxatio Gov
the tax is an income tax, municipality where thebranch or outlet is located. SinceFerremaro, Inc. ecte
n ern
which cannot be imposed maintains one factory,the sales recorded in the principal officeshall be d
men
by the city government. Do allocated and 30% of said salesare taxable in the place where theprincipal
t
you agree with the position office is located while 70% istaxable in the place where the factory islocated
Unit
of BAT Corporation? (Sec. 150, LGC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW
s
Explain. ( 5% ) SCHOOLS

MNO Corporation was Yes. Under Sec. 165 of the LocalGovernment Code, the taxable period forthe Local Colle Tax
organized onJuly 1, 2006, to payment of business taxes is thecalendar year.UP LAW COMPLEX & Govern ction peri
6 engage in trading of PHILIPPINE ASSOCIATIONOF LAW SCHOOLSNote: Sec. 165 LGC- Tax Period ment of od 2008
schoolsupplies, with amd Manner of Payment- Unless otherwise provided in this Code, the tax Taxatio busi and
principal place of business period of all local taxes, fees and charges shall be the calendar year. Such n ness man
 inCubao, Quezon City. Its
books of accountsand
income statement showing
gross salesas follows:July 1,
2006 to December 31,
2006P5,000,000.January 1,
2007 to June 30,
2007P10,000,000.July 1,
2007 to December 31,
200715,000,000.Since MNO
Corporation adopted fiscal
yearending June 30 as its
taxable year forincome tax
ner
purposes, it paid its
of
2%business tax for fiscal
taxes and charges may be paid in quarterly installment tax pay
year ending June 30,2007
men
based on gross sales of P15
t
million.However, the
Quezon City
Treasurerassessed the
corporation for
deficiencybusiness tax for
2007 based on gross salesof
P25 million alleging that
local businesstaxes shall be
computed based on
calendaryear . a. Is the
position of the city
treasurer tenable? Explain.
(3%)
MNO Corporation was Yes, provided there is a valid tax ordinance enacted for that purpose that does Local Natu Aut
organized onJuly 1, 2006, to not impose such surcharge and/or interest on any taxes not paid (Sec. 192, Govern re hori
7 2008
engage in trading of Local Government Code).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF ment and ty to
schoolsupplies, with LAW SCHOOLSNote: Sec. 192 LGC Authority to Grant Tax Exemptions Taxatio Sour gran
 principal place of business
inCubao, Quezon City. Its
books of accountsand
income statement showing
gross salesas follows:July 1,
2006 to December 31,
2006P5,000,000.January 1,
2007 to June 30,
2007P10,000,000.July 1,
2007 to December 31,
200715,000,000.Since MNO
Corporation adopted fiscal
yearending June 30 as its
t
taxable year forincome tax
ce of loca
purposes, it paid its
Privileges- Local Government units may, through ordinances duly approved, Taxi l tax
2%business tax for fiscal
grant tax exemptions, incentives or reliefs under such terms and conditions as n ng exe
year ending June 30,2007
they may deem necessary. Pow mp
based on gross sales of P15
er tion
million.However, the
s
Quezon City
Treasurerassessed the
corporation for
deficiencybusiness tax for
2007 based on gross salesof
P25 million alleging that
local businesstaxes shall be
computed based on
calendaryear. b. May the
deficiency business tax be
paid in installments
without surcharge and
interest? Explain. (3%)
In January 1970, Juan With regard to the Laguna property, it is a capital asset because it is Income Gros Inco
8 2008
Gonzales bought one agricultural land. The Batangas property, in contrast, is an ordinary asset Taxatio s me
 hectare of agricultural land
in Laguna for P100,000. This
property has a current fair
market value of P10 million
in view of the construction
of a concrete road
traversing the property.
Juan Gonzales agreed to
exchange his agricultural lot
in Laguna for a one-half fro
hectare residential property m
located in Batangas, with a because it is either (1) held for sale to customers in the ordinary course of deal
fair market value of P10 business or (2) real property used in the trade of business of a realtor like Inco ings
n
million, owned by Alpha Alpha Corp (Secs. 24[D1], 39[A1]2 NIRC; and RR No. 7-2003). (UP LAW me in
Corporation, a domestic COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) pro
corporation engaged in the pert
purchase and sale of real y
property. Alpha
Corporation acquired the
property in 2007 for P9
million. What is the nature
of real properties
exchanged for tax
purposes - capital asset or
ordinary asset? Explain.
( 3% )
In January 1970, Juan Taxa
No. The difference in the supposed taxable value cannot be legally subject to Tax
Gonzales bought one tion
the donor’s tax, because the use of a fair market value other than that atio
hectare of agricultural land of
prescribed by the Tax Code is not allowed for computing any internal revenue Income n of
in Laguna for P100,000. This resid
9 tax. Taxatio capi 2008
property has a current fair ent
(Section 6(E), NIRC). n tal
market value of P10 million citize
UP LAW COMPLEX & PHILIPPINE ASSOCIATION gain
in view of the construction ns,
OF LAW SCHOOLS s
of a concrete road non-
 traversing the property.
Juan Gonzales agreed to
exchange his agricultural lot
in Laguna for a one-half
hectare residential property
located in Batangas, with a
fair market value of P10 resid
million, owned by Alpha ent
Corporation, a domestic citize
corporation engaged in the ns,
purchase and sale of real and
property. Alpha resid
Corporation acquired the ent
property in 2007 for P9 alien
million. s

Is Juan Gonzales subject to

income tax on the
exchange of property? If
so, what is the tax based
and rate? Explain. ( 3% )
1 In January 1970, Juan Yes. Alpha must pay corporate income tax at the rate of 35% of the residential Income Taxa Tax 2008
0 Gonzales bought one property’s fair market value of P10 million (Sec. 27[A] NIRC).UP LAW Taxatio tion Pay
hectare of agricultural land COMPLEX & PHILIPPINE ASSOCIATION n of able
in Laguna for P100,000. This OF LAW SCHOOLS dom
property has a current fair estic
market value of P10 million Note: Sec 27(A) Rates of Income Tax on Domestic Corporations (as amended corp
in view of the construction by RA 9337) orati
of a concrete road Except as otherwise provided in this Code, an income tax of thirty-five percent ons
traversing the property. (35%) is hereby imposed upon the taxable income derived during each taxable
Juan Gonzales agreed to year from all sources within and without the Philippines by every corporation,
exchange his agricultural lot as defined in Section 22(B) of this Code and taxable under this Title as a
in Laguna for a one-half corporation, organized in, or existing under the laws of the Philippines:
hectare residential property Provided, That effective January 1, 2009, the rate of income tax shall be
located in Batangas, with a
fair market value of P10
million, owned by Alpha
Corporation, a domestic
corporation engaged in the
purchase and sale of real
property. Alpha
Corporation acquired the
thirty percent (30%).
property in 2007 for P9
million.

Is Alpha Corporation
subject to income tax on
the exchange of property?
If so, what is the tax base
and rate? Explain. ( 3% )
 While driving his car to
Baguio lastmonth, Pedro
Asuncion, together with
hiswife Assunta, and only
son, Jaime, met anaccident
that caused that
instantaneousdeath of
Jaime. The following day,
Assuntaalso died in the
hospital. The spouses
Ded
andtheir son had the Yes. Provided that the estate tax of the property of Jaime was paid before Ded
ucti
following assets Assunta died, as provided for in Sec. 86(A2) NIRC. Vanishing deduction equal uctio
ons
1 andliabilities at the time of to 100% is applicable to Assunta’s estate as regards ½ of the cash she Estate ns
fro 2008
1 death:Properties Assunta inherited from her son Jaime. Assunta died within one (1) year after receiving Tax from
m
JaimeExclusive Conjugal her share of Jaime’s estate.UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF Estat
Esta
ExclusiveCash P 10M P LAW SCHOOLS e
te
1.2MCars P 2M P 500KLand
P 5M P
2MResidentialhouseP
4MMortgagepayableP
2.5MFuneralexpenses P
300K
b. Is vanishing deduction
applicable to the Estate of
Assunta Asuncion? Explain
( 4% )

John McDonald, a U.S. Taxa Tax

Yes, He is liable for a final income tax of5% on first P100,000 net capital
Citizen residing in Makati Income tion atio
1 gain,and 10% for any amount in excess ofP100,000 net capital gain
City, bought shares of stock Taxatio of n of 2008
2 (Sec.24[C]NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW
of a domestic corporation n resid capi
SCHOOLS
whose shares are listed and ent tal
 traded in the Philippine
Stock Exchange at the price
citize
of P2 million Yesterday, he
ns,
sold the shares of stock
non-
through his favorite Makati
resid
stockbroker at a gain of
ent
P200,000. If John
citize gain
McDonald deriectly sold
ns, s
the shares to his best
and
friend, who is another U.S.
resid
Citizen residing in Makati,
ent
at a gain of P200,000. Is he
alien
liable for Philippine Income
s
Tax? If so, what is the ntax
base and rate? ( 3% )
Spouses Jose San Pedro and
Clara San Pedro, both
Filipino citizens, are the
owners of a residential
house and lot in Quezon
No. The law classiffies the donated property as an exclusion from the income
City. After the recent Excl
tax, and therefrom exempt from income tax. UP LAW COMPLEX & PHILIPPINE
wedding of their son, usio
ASSOCIATION
Mario, to Maria, the ns
OF LAW SCHOOLS Gros
spouses donated said real Income fro
1 s
property to them. At the Taxatio m 2008
3 Note: Sec. 32 (B)(3) - Exclusions from Gross Income Inco
time of donation, the real n Gro
Gifts, Bequests, and Devices.- The value of property acquired by gift, bequest, me
property has a fair market ss
devise, or descent: Provided, However, that income from such property, as
value of P2 million. Inco
well as gift, bequest, devise, or descent of income from any property, in cases
me
of transfers of divided interest, shall be included in gross income
Are Mario and Maria
subject to income tax the
value of the real property
donated to them? Explain.
(4%)
 In 2007, spouses Renato
and Judy Garcia opened
peso and dollar deposits at
the Philippine branch of the
Hong Kong Bank in Manila.
Renato is an overseas
All the properties and interests enumerated in the problem should be
worker in Hong Kong while
included in the gross estate if the decedent.
Judy lives and works in
Situ
Manila. During the year, the
The composition of a gross estate of a decedent who is a citizen of the s of
bank paid interest income
Philippines includes all properties, tangible or intangible, wherever situated Tax
of P10,000 on the peso Gros
and to the extent of the interest that he has thereon at the time of his death Income atio
1 deposit and USS1,000 on s
(Sec 85, NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW Taxatio n; 2008
4 the dollar deposit. The bank Inco
SCHOOLS n Pass
withheld final income tax me
ive
equivalent to 20% of the
Note: Sec. 85 NIRC - Gross Estate Inco
entire interest income and
The value of the gross estate of the decedent shall be determined by including me
remitted the same to the
the value at the time of his death of ALL PROPERTY, real or personal, tangible
BIR.
or intangible, wherever situated: xxx
Are the interest incomes
on the bank deposits of
spouses Renato and Judy
Garcia subject to income
tax? Explain. (4%)
In 2007, spouses Renato
Situ
and Judy Garcia opened
s of
peso and dollar deposits at
Tax
the Philippine branch of the Gros
No, The bank should withhold only 7.5% on the final interest income of the Income atio
1 Hong Kong Bank in Manila. s
wife. The husband is exempt.UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF Taxatio n; 2008
5 Renato is an overseas Inco
LAW SCHOOLS n Pass
worker in Hong Kong while me
ive
Judy lives and works in
Inco
Manila. During the year, the
me
bank paid interest income
 of P10,000 on the peso
deposit and USS1,000 on
the dollar deposit. The bank
withheld final income tax
equivalent to 20% of the
entire interest income and
remitted the same to the
BIR. Is the bank correct in
withholding the 20% final
tax on the entire interest
income? Explain. (3%)
Spouses Jose San Pedro and
Clara San Pedro, both
Filipino citizens, are the
owners of a residential
house and lot in Quezon
City. After the recent
wedding of their son,
Yes, because the value of the gift exceeds P10,000 (Sec. 101 [A1] NIRC).
Mario, to Maria, the Sch
spouses donated said real Pers edul
However, they are each entitled to a deduction of P100,000 for the net value
1 property to them. At the Donor’s on e of
of the gift (Sec.99[B] NIRC). Each spouse shall be liable for a taxable gift worth 2008
6 time of donation, the real Tax liabl Tax
P890,000 each at the progressive rate of 2-15%, since the donee is a relative.
property has a fair market e Rate
UP LAW COMPLEX & PHILIPPINE ASSOCIATION
value of P2 million. s
OF LAW SCHOOLS
Are Jose and Clara subject
to donor's tax? If so, how
much is the taxable gift of
each spouse and what rate
shall be applied to the gift?
Explain. (4%)
Jose Cerna, Filipino citizen, No. The BIR is not correct. The property valuation should be fixed at P20 Time Basi
1 Estate
married to Maria Cerna, million, which was the value at the time of the death of Jose Cernan (Sec. and s in 2008
7 Tax
died in a vehicular accident 88[A] NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
 million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. Is the BIR correct in
valuing the real property at
P40 million? Explain. ( 3% )
1 Jose Cerna, Filipino citizen, For purposes of computing the estate tax, the value should have been P20 Estate Time Basi 2008
8 married to Maria Cerna, million because that was the value of the property at the time of death (Sec. Tax and s in
died in a vehicular accident 88[A]NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. If you disagree,
what is the correct value to
used for estate tax
purposes? Explain. ( 3% )
 While driving his car to
Baguio lastmonth, Pedro
Asuncion, together with
hiswife Assunta, and only
son, Jaime, met anaccident
that caused that
instantaneousdeath of
Dete
Jaime. The following day,
rmin
Assuntaalso died in the
ation
hospital. The spouses Ded
No. By availing of the standard deduction of P1 million (Sec. 86 [A5] NIRC); of
andtheir son had the ucti
funeral expenses not exceeding P200,000 and in no case, to exceed 5% of the Gros
following assets ons
1 gross estate (Sec. 86[A1a] NIRC); and medical expenses not more than Estate s
andliabilities at the time of fro 2008
9 P500,000 (Sec. 86[A6] NIRC), the result is a negative net estate. Therefore, Tax Estat
death:Properties Assunta m
there is no estate tax liability.UP LAW COMPLEX & PHILIPPINE e
JaimeExclusive Conjugal esta
ASSOCIATIONOF LAW SCHOOLS and
ExclusiveCash P 10M P te
Net
1.2MCars P 2M P 500KLand
Estat
P 5M P
e
2MResidentialhouseP
4MMortgagepayableP
2.5MFuneralexpenses P
300K
a. Is the Estate of Jaime
Asuncion liable for estate
tax? Explain. ( 4% )
2 Jose Cerna, Filipino citizen, No. The BIR is not correct. The property valuation should be fixed at P20 Estate Time Basi 2008
0 married to Maria Cerna, million, which was the value at the time of the death of Jose Cernan (Sec. Tax and s in
died in a vehicular accident 88[A] NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. Is the BIR correct in
valuing the real property at
 P40 million? Explain. ( 3% )
2 Jose Cerna, Filipino citizen, For purposes of computing the estate tax, the value should have been P20 Estate Time Basi 2008
1 married to Maria Cerna, million because that was the value of the property at the time of death (Sec. Tax and s in
died in a vehicular accident 88[A]NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. If you disagree,
what is the correct value to
used for estate tax
purposes? Explain. ( 3% )
 While driving his car to
Baguio lastmonth, Pedro
Asuncion, together with
hiswife Assunta, and only
son, Jaime, met anaccident
that caused that
instantaneousdeath of
Dete
Jaime. The following day,
rmin
Assuntaalso died in the
ation
hospital. The spouses Ded
No. By availing of the standard deduction of P1 million (Sec. 86 [A5] NIRC); of
andtheir son had the ucti
funeral expenses not exceeding P200,000 and in no case, to exceed 5% of the Gros
following assets ons
2 gross estate (Sec. 86[A1a] NIRC); and medical expenses not more than Estate s
andliabilities at the time of fro 2008
2 P500,000 (Sec. 86[A6] NIRC), the result is a negative net estate. Therefore, Tax Estat
death:Properties Assunta m
there is no estate tax liability.UP LAW COMPLEX & PHILIPPINE e
JaimeExclusive Conjugal esta
ASSOCIATIONOF LAW SCHOOLS and
ExclusiveCash P 10M P te
Net
1.2MCars P 2M P 500KLand
Estat
P 5M P
e
2MResidentialhouseP
4MMortgagepayableP
2.5MFuneralexpenses P
300K
a. Is the Estate of Jaime
Asuncion liable for estate
tax? Explain. ( 4% )
Jose Cerna, Filipino citizen, Basi
Time
married to Maria Cerna, s in
and
died in a vehicular accident the
Tran
in NLEX on July 10, 2007. No. The BIR is not correct. The property valuation should be fixed at P20 valu
2 Estate sfer
The spouses owned, among million, which was the value at the time of the death of Jose Cernan (Sec. atio 2008
3 Tax of
others, a 100-hectare 88[A] NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS n of
Prop
agricultural land in Sta. pro
ertie
Rosa, Laguna with current pert
s
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. Is the BIR correct in
valuing the real property at
 P40 million? Explain. ( 3% )
2 Jose Cerna, Filipino citizen, For purposes of computing the estate tax, the value should have been P20 Estate Time Basi 2008
4 married to Maria Cerna, million because that was the value of the property at the time of death (Sec. Tax and s in
died in a vehicular accident 88[A]NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. If you disagree,
what is the correct value to
used for estate tax
purposes? Explain. ( 3% )
 While driving his car to
Baguio lastmonth, Pedro
Asuncion, together with
hiswife Assunta, and only
son, Jaime, met anaccident
that caused that
instantaneousdeath of
Dete
Jaime. The following day,
rmin
Assuntaalso died in the
ation
hospital. The spouses Ded
No. By availing of the standard deduction of P1 million (Sec. 86 [A5] NIRC); of
andtheir son had the ucti
funeral expenses not exceeding P200,000 and in no case, to exceed 5% of the Gros
following assets ons
2 gross estate (Sec. 86[A1a] NIRC); and medical expenses not more than Estate s
andliabilities at the time of fro 2008
5 P500,000 (Sec. 86[A6] NIRC), the result is a negative net estate. Therefore, Tax Estat
death:Properties Assunta m
there is no estate tax liability.UP LAW COMPLEX & PHILIPPINE e
JaimeExclusive Conjugal esta
ASSOCIATIONOF LAW SCHOOLS and
ExclusiveCash P 10M P te
Net
1.2MCars P 2M P 500KLand
Estat
P 5M P
e
2MResidentialhouseP
4MMortgagepayableP
2.5MFuneralexpenses P
300K
a. Is the Estate of Jaime
Asuncion liable for estate
tax? Explain. ( 4% )
Jose Cerna, Filipino citizen, Basi
Time
married to Maria Cerna, s in
and
died in a vehicular accident the
Tran
in NLEX on July 10, 2007. No. The BIR is not correct. The property valuation should be fixed at P20 valu
2 Estate sfer
The spouses owned, among million, which was the value at the time of the death of Jose Cernan (Sec. atio 2008
6 Tax of
others, a 100-hectare 88[A] NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS n of
Prop
agricultural land in Sta. pro
ertie
Rosa, Laguna with current pert
s
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. Is the BIR correct in
valuing the real property at
 P40 million? Explain. ( 3% )
2 Jose Cerna, Filipino citizen, For purposes of computing the estate tax, the value should have been P20 Estate Time Basi 2008
7 married to Maria Cerna, million because that was the value of the property at the time of death (Sec. Tax and s in
died in a vehicular accident 88[A]NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Tran the
in NLEX on July 10, 2007. sfer valu
The spouses owned, among of atio
others, a 100-hectare Prop n of
agricultural land in Sta. ertie pro
Rosa, Laguna with current s pert
fair market value of P20 y
million, which was subject
to matter of a Joint Venture
Agreement about to be
implemented with Star
Land Corporation ( SLC ), a
well-known real estate
development company. He
bought the said real
property for P2 million fifty
years ago. On January
5,2008, the administrator
of the estate and SLC jointly
announced their big plans
to start conversion and
development of the
agricultural lands in Sta.
Rosa, Laguna, into first-
class residential and
commercial centers. As a
result, the prices of real
properties in the locality
have doubled. The
administrator of the Estate
of Jose Cernan filed the
estate tax return on
January 9, 2008, by
including in the gross estate
the real property at P2
million. After 9 months, the
BIR issued deficiency estate
tax assessment, by valuing
the real property at P40
million. If you disagree,
what is the correct value to
used for estate tax
purposes? Explain. ( 3% )
 While driving his car to
Baguio lastmonth, Pedro
Asuncion, together with
hiswife Assunta, and only
son, Jaime, met anaccident
that caused that
instantaneousdeath of
Dete
Jaime. The following day,
rmin
Assuntaalso died in the
ation
hospital. The spouses Ded
No. By availing of the standard deduction of P1 million (Sec. 86 [A5] NIRC); of
andtheir son had the ucti
funeral expenses not exceeding P200,000 and in no case, to exceed 5% of the Gros
following assets ons
2 gross estate (Sec. 86[A1a] NIRC); and medical expenses not more than Estate s
andliabilities at the time of fro 2008
8 P500,000 (Sec. 86[A6] NIRC), the result is a negative net estate. Therefore, Tax Estat
death:Properties Assunta m
there is no estate tax liability.UP LAW COMPLEX & PHILIPPINE e
JaimeExclusive Conjugal esta
ASSOCIATIONOF LAW SCHOOLS and
ExclusiveCash P 10M P te
Net
1.2MCars P 2M P 500KLand
Estat
P 5M P
e
2MResidentialhouseP
4MMortgagepayableP
2.5MFuneralexpenses P
300K
a. Is the Estate of Jaime
Asuncion liable for estate
tax? Explain. ( 4% )
DEF Corporation is wholly Yes. The defense of prescription is available as against the 2004 tax credit.
owned subsidiary of DEF, Under Sec. 229 NIRC, the prescriptive period is 2 years reckoned from the
Taxp
Inc., California, USA. filing of the annual return (CIR v. TMX Sales, G.R. No. 83736, 15 January 1992;
ayer'
Starting December 15, CIR v. PhilAm Life, G.R. No. 105208, 29May 1995; CIR v. CTA, G.R. No. TAX
2 s Refu
2004, DEF Corporation paid 117254,21 January 1999). However, the 2005 claim has not yet prescribed REMEDI 2008
9 rem nd
annual royalties to DEF, since its prescriptive period ends on January 11, 2008 while the claim was filed ES
edie
Inc., for the use of the on April 10, 2007. The filing of the Petition for Review with the Tax Appeals on
s
latter's software, for which the 2005 Claim is premature (Sec. 57[A]NIRC). UP LAW COMPLEX &
the former, as with holding PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
 agent of the government,
withheld and remitted to
the BIR the 15% final tax
based on the gross royalty
payments. The withholding
tax return was filed and tax
remitted to the BIR on
January 10 of the following
year. On April 10, 2007 DEF
Corporation filed written
claim for tax credit with the
BIR, arising from
erroneously paid income
taxes covering the years
2004 and 2005. The
following day, DEF
Corporation filed a petition
for review with the court of
Tax Appeals involving the
tax credit claim for 2004
and 2005. a. As a BIR
lawyer handling the case,
would you raise the
defense of prescription in
your answer to the claim
for tax credit? Explain. ( 4%
)
DEF Corporation is wholly No. the BIR cannot raise the defense that DEF Corporation is not the proper
Taxp
owned subsidiary of DEF, party.
ayer'
Inc., California, USA. In CIR v. Procter & Gamble, G.R. No. 66838, 02 December 1991, the Court TAX
3 s Refu
Starting December 15, ruled that a final withholding agent is a proper party “with sufficient legal REMEDI 2008
0 rem nd
2004, DEF Corporation paid interest” because it will be liable in the event that the final income tax cannot ES
edie
annual royalties to DEF, be paid by the taxpayer (See also Philippine Guaranty Co. v. CIR and CTA, No.
s
Inc., for the use of the L-22074, 30 April 1965).
 latter's software, for which
the former, as with holding
agent of the government,
withheld and remitted to
the BIR the 15% final tax
based on the gross royalty
payments. The withholding
tax return was filed and tax
remitted to the BIR on
January 10 of the following
year. On April 10, 2007 DEF
Corporation filed written
claim for tax credit with the
BIR, arising from
erroneously paid income UP LAW COMPLEX & PHILIPPINE ASSOCIATION
taxes covering the years OF LAW SCHOOLS
2004 and 2005. The
following day, DEF
Corporation filed a petition
for review with the court of
Tax Appeals involving the
tax credit claim for 2004
and 2005.

b. Can the BIR lawyer raise

the defense that DEF
Corporation is not the
proper party to file such
claim for tax credit?
Explain. ( 3% )
After examining the books An assessment notice is a computation prepared by the BIR of the alleged Taxp
TAX Asse
3 and records of EDS unpaid taxes, plus interests, penalties or surcharges, if any. However, an ayer'
REMEDI ssm 2008
1 Corporation, the 2004 final assessment notice must be accompanied by a demand letter from the BIR in s
ES ent
assessment notice, showing order to result in valid assessment (RR No. 12-99)UP LAW COMPLEX & rem
 basic tax of P1,000,000
deficiency interest of
P400,000 and due date for
payment of April 30, 2007,
but without the demand
letter, was mailed and
released by the BIR on April
edie
15, 2007. The registered PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
s
letter, containing the tax
assessment, was received
by the EDS Corporation on
April 25, 2007 . What is an
assessment notice? What
are the requisites of a valid
assessment? Explain ( 3% )
3 After examining the books I would raise the defense that there is no valid assessment because EDS TAX Taxp Asse 2008
2 and records of EDS Corporation did not receive a demand letter from the BIR. REMEDI ayer' ssm
Corporation, the 2004 final UP LAW COMPLEX & PHILIPPINE ASSOCIATION ES s ent
assessment notice, showing OF LAW SCHOOLS rem
basic tax of P1,000,000 edie
deficiency interest of s
P400,000 and due date for
payment of April 30, 2007,
but without the demand
letter, was mailed and
released by the BIR on April
15, 2007. The registered
letter, containing the tax
assessment, was received
by the EDS Corporation on
April 25, 2007.

As tax lawyer of EDS

Corporation, what legal
 defense(s) would you
raised against the
assessment? Explain.
( 3% ).
3 Pedro Manalo, A Filipino The BIR officer correctly disallowed the Income Taxa Tax 2008
3 citizen residing in Makati credit of the final tax of P1.2 million Taxatio tion atio
City, owns a vacation house against the net income tax, which is n of n of
and lot in San Francisco, subject to deductions. However, the resid Capi
California, U.S.A, which he assessment of 35% is incorrectly ent tal
acquired in 2000 for P15 imposed. The correct rate is based on citize Gain
million. On January 10, the 5-32% tax scale which is applicable ns, s
2006 he sold said real to individuals (Sec.24[D1] and Sec. non- Tax
property to Juan Mayaman, 42[A5] NIRC). resid
another Filipino citizen UP LAW COMPLEX & PHILIPPINE ASSOCIATION ent
residing in Quezon City, for OF LAW SCHOOLS citize
P20 million. On February 9, ns,
2006 Manalo filed the and
capital gains tax return and resid
paid P1.2 million ent
representing 6% capital alien
gain tax. Since Manalo did s
not derive any ordinary
income, no income tax
returnn was filed by him for
2006. After the tax audit
conducted in 2007, the BIR
officer assessed Manalo for
deficiency income tax
computed as follows: P5
million ( P20 million less P
15 million ) x 35% = P1.75
million, without the capital
gains tax paid being
allowed as tax credit.
 Manalo consulted a real
estate broker who said that
the P1.2 million capital
gains tax should be credited
from P1.75 million
deficiency income tax.

Is the BIR officer's tax

assessment correct?
Explain. ( 3% )
3 Pedro Manalo, A Filipino I would advise him to demand theapplication of the 5-32% tax scaleinstead of Income Taxa Tax 2008
4 citizen residing in Makati the fixed rate of 35% whichapplies only to domestic corporations(Sec. 24[D1] Taxatio tion atio
City, owns a vacation house NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS n of n of
and lot in San Francisco, resid Capi
California, U.S.A, which he ent tal
acquired in 2000 for P15 citize Gain
million. On January 10, ns, s
2006 he sold said real non- Tax
property to Juan Mayaman, resid
another Filipino citizen ent
residing in Quezon City, for citize
P20 million. On February 9, ns,
2006 Manalo filed the and
capital gains tax return and resid
paid P1.2 million ent
representing 6% capital alien
gain tax. Since Manalo did s
not derive any ordinary
income, no income tax
returnn was filed by him for
2006. After the tax audit
conducted in 2007, the BIR
officer assessed Manalo for
deficiency income tax
 computed as follows: P5
million ( P20 million less P
15 million ) x 35% = P1.75
million, without the capital
gains tax paid being
allowed as tax credit.
Manalo consulted a real
estate broker who said that
the P1.2 million capital
gains tax should be credited
from P1.75 million
deficiency income tax. If
you were hired by Manalo
as his tax consultant, what
advice would you give him
to protect his interest?
Explain. ( 3% )
Maria Suerte, a Filipino Esca
citizen, purchased a lot in pe
Makati City in 1980 at a fro
price of P1 million. Said m
property has been leased to taxa
MAS Corporation, a tion:
No. The exchange of the real estate property for the shares of stocks is
domestic corporation General Doct Tax
considered as a legitimate tax avoidance scheme (Sec. 40 [C2b] NIRC]. The sale
engaged in manufacturing Principl rines Avoi
3 of the shares of stocks of domestic corporation, which is a capital asset, is
paper products, owned 99% es OF in dan 2008
5 subject to final tax 5% on the first P100,000 and 10 % on the amount in excess
by Maria Suerte. In October Taxatio Taxa ce
of P100,000 (Sec. 24[C]NIRC]. UP LAW COMPLEX & PHILIPPINE
2007, EIP Corporation, a n tion Exch
ASSOCIATIONOF LAW SCHOOLS
real estate developer, ang
expressed its desire to buy e of
the Makati property at its Real
fair market value P300 Pro
million, payable as follows : pert
(a) P60 million down y
payment; and (b) balance, and
payable equally in twenty Shar
four (24) monthly es
consecutive installments. of
Upon the advice of a tax Stoc
lawyer, Maria Suerte k
exchanged her Makati
property for shares of stock
of MAS Corporation. A BIR
ruling, confirming the tax-
free exchange of property
for shares of stock, was
secured from the BIR
National Office and a
Certificate Authorizing
Registration was issued by
the Revenue District Officer
(RDO) where the property
was located. Subsequently,
she sold her entire stock
holdings in MAS
Corporation to EIP
Corporation for P300
million. In view of the tax
advice, Maria Suerte paid
only the capital gains tax of
P29,895,000 ( P100,000 x
5% plus P298,900,00 x
10% ), instead of the
corporate income tax of
P104,650,00 ( 35% on P299
million gain from sale of
real property ). After
evaluating the capital gains
 tax payment, the RDO
wrote a letter to Maria
Suerte, Slating that she
commited tax evasion. Is
the contention of the RDO
tenable? Or was it tax
avoidance that Maria
Suerte had resorted to?
Explain. ( 6% )
1 Jessie brought into the The criminal complaint is bereft ofmerit. The issuance of a warrant ofseizure Tariff Rem Gov 2009
Philippines a foreign-made and detention by the Collector ofCustoms for goods released contrary tolaw, and edie ern
luxury car, and paid less as when there is underpayment oftaxes and duties, is his primary andexclusive Custom s men
than the actual taxes and jurisdiction and precludes thejudge of regular courts form takingcognizance of s t
duties due. Due to the the subject matter.Accordingly, what was done by theCollector could not be a
discrepancy, the Bureau of basis of aprosecution for the usurpation of judicialfunctions (Commissioner v.
Customs instituted seizure Navarro, 77SCRA 264 (1977)). UP LAW COMPLEX & PHILIPPINE
proceedings and issued a ASSOCIATIONOF LAW SCHOOLS
warrant of seizure and
detention. The car, then
parked inside a pay parking
garage, was seized and
brought by government
agents to a government
impounding facility. The
Collector of Customs
denied Jessie's request for
the withdrawal of the
warrant.Aggrieved, Jessie
filed against the Collector a
criminal complaint for
usurpation of judicial
functions on the ground
that only a judge may issue
a warrant of search and
 seizure. Resolve with
reasons Jessie's criminal
complaint. (4%)
Jessie brought into the
Philippines a foreign-made
luxury car, and paid less
than the actual taxes and
duties due. Due to the
discrepancy, the Bureau of
Customs instituted seizure
proceedings and issued a
warrant of seizure and
detention. The car, then
parked inside a pay parking
garage, was seized and
No. The luxury car being in a dwelling
brought by government
house, cannot be seized by officers of
agents to a government
the Bureau of Customs exercising police Tariff Gov
impounding facility. The Rem
authority without a search warrant and ern
2 Collector of Customs edie 2009
issued by a judge of a competent court Custom men
denied Jessie's request for s
(Sec 2209, TCC; Pacis v. Pamaran, 56 s t
the withdrawal of the
SCRA 16 (1974)). UP LAW COMPLEX & PHILIPPINE ASSOCIATION
warrant.Aggrieved, Jessie
OF LAW SCHOOLS
filed against the Collector a
criminal complaint for
usurpation of judicial
functions on the ground
that only a judge may issue
a warrant of search and
seizure. Would your
answer be the same if the
luxury car was seized while
parked inside the garage of
Jessie's residence? Why or
why not? (4%)
 The Sangguniang Bayan of
the Municipality of
Sampaloc, Quezon, passed
an ordinance imposing a
storage fee of ten centavos
(P0.10) for every 100 kilos
of copra deposited in any
bodega within the
Yes. The municipality is authorized toimpose reasonable fees and charges as
Municipality's jurisdiction. Spec
aregulatory measure in an amountcommensurate with the cost ofregulations, fees
The Metropolitan ific
inspection and licensing(Sec 147, LGC). In the case at bar, thestorage of copra and
Manufacturing Corporation taxin
in any warehouse withinthe municipality can be the propersubject of cha
(MMC), with principal office g
regulation pursuant to thepolice power granted to municipalitiesunder the nge
in Makati, is engaged in the Local pow
Revised Administrative Codeof the “general welfare clause.” Awarehouse used s for
manufacture of soap, edible Govern er of
for keeping or storingcopra is an establishment likely toendanger the public regu
3 oil, margarine, and other ment Local 2009
safety or likely togave rise to conflagration because the oilcontent of the latio
coconut oil-based products. Taxatio Gov
copra, when ignited, isdifficult to put under control by waterand the use of n
It has a warehouse in n ern
chemicals is necessary toput out the fire. It is, thus, reasonablethat the and
Sampaloc, Quezon, used as men
Municipality impose storagefees for its own surveillance and lookout(Procter lice
storage space for the copra t
& Gamble PhilippineManufacturing Corporation v.Municipality of Jagna, nsin
purchased in Sampaloc and Unit
Province ofBohol, 94 SCRA 894 (1979)) UP LAW COMPLEX & PHILIPPINE g
nearby towns before the s
ASSOCIATIONOF LAW SCHOOLS
same is shipped to Makati.
MMC goes to court to
challenge the validity of the
ordinance, demanding the
refund of the storage fees it
paid under protest.Is the
ordinance valid? Explain
your answer. (4%)

Republic Power No, the contention of JEC is not correct.The owner of the power barges is Real Impo exe
Corporation (RPC) is a JECwhich is required to operate, manageand maintain the power barges for Propert sitio mp
4 2009
government-owned and thepurpose of converting the fuel of RPC into electricity. This belies the y n of tion
controlled corporation claimthat RPC, a government-owned andcontrolled corporation engaged in Taxatio Real fro
engaged in the supply, thesupply, generation and transmission ofelectric power, is the actual, direct n Prop m
generation and andexclusive user of the barge, hence, doesnot fall within the purview of erty real
transmission of electric theexempting provision of Sec 234(c) of RA7160. Likewise, the argument that Tax pro
power. In 2005, in order to RPCshould be liable to the real propertytaxes consonant with the contract pert
provide electricity to isdevoid of merit. The liability for thepayment of the real estate taxes y
Southern Tagalog isdetermined by law and not by theagreement of the parties (FELS EnergyInc. tax
provinces, RPC entered into v. The Province of Batangas, 516SCRA 186 (2007)). UP LAW COMPLEX &
an agreement with Jethro PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
Energy Corporation (JEC),
for the lease of JEC's power
barges which shall be
berthed at the port of
Batangas City. The contract
provides that JEC shall own
the power barges and the
fixtures, fittings, machinery,
and equipment therein, all
of which JEC shall supply at
its own cost, and that JEC
shall operate, manage and
maintain the power barges
for the purpose of
converting the fuel of RPC
into electricity. The
contract also stipulates that
all real estate taxes and
assessments, rates and
other charges, in respect of
the power barges, shall be
for the account of RPC.In
2007, JEC received an
assessment of real property
taxes on the power barges
from the Assessor of
 Batangas City. JEC sought
reconsideration of the
assessment on the ground
that the power barges are
exempt from real estate
taxes under Section 234 [c]
of R.A. 7160 as they are
actually, directly and
exclusively used by RPC, a
government-owned and
controlled corporation.
Furthermore, even
assuming that the power
barges are subject to real
property tax, RPC should be
held liable therefor, in
accordance with the terms
of the lease agreement. Is
the contention of JEC
correct? Explain your
answer. (4%)

False. Congress can pass a law taxingincome of religious institutions from Exe
A law imposing a tax on itsproperty or activities used for profit butnot for their income from exercise nmp
Gros
income of religious ofreligious activities. The imposition of atax on income of a religious Income t
s
5 institutions derived from institutionfrom sale of religious articles is aninfringement of religious freedom Taxatio Cor 2009
Inco
the sale of religious articles whichis not allowed under the fundamentallaw (American Bible Society v. City n por
me
is valid. True or False ofManila, 101 Phil. 385 (1957)). UP LAW COMPLEX & PHILIPPINE atio
ASSOCIATIONOF LAW SCHOOLS ns
 Melissa inherited from her
father a 300-square-meter
Taxa
lot. At the time of her
tion
father's death on March 14,
of
1995, the property was
resid
valued at P720,000.00. On
Yes. The capital gains tax is 6% of the ent
February 28, 1996, to
higher value between the selling price citize Tax
defray the cost of the
(P600,000.00) and fair market value of ns, atio
medical expenses of her
the real property (P900,000.00) or a tax Income non- n of
sick son, she sold the lot for
6 in the amount if P54,000.00. The capital Taxatio resid capi 2009
P600,000.00, on cash basis.
gains tax is due on the sale if a real n ent tal
The prevailing market value
property classified as a capital asset (Sec citize gain
of the property at the time
24(d)(1), NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATION ns, s
of the sale was P3,000.00
OF LAW SCHOOLS and
per square meter. Is
resid
Melissa liable to pay capital
ent
gains tax on the
alien
transaction? If so, how
s
much and why? If not, why
not? (4%)
Kenya International Airlines Taxa
(KIA) is a foreign tion
corporation, organized No, KIA’s position is not tenable. The revenue it derived in 1997 from sales of of
under the laws of Kenya. It airplane tickets in the Philippines, subject 35% tax based on its taxable income resid
is not licensed to do pursuant to Sec 25 (a)(1) of the Tax Code of 1997. The transacting of business ent
business in the Philippines. in the Philippines through its local sales agent, makes KIA a resident foreign citize
Income Gen
Its commercial airplanes do corporation despite the absence of landing rights, thus, it is taxable on income ns,
7 Taxatio eral 2009
not operate within derived within. The source of an income is the property, activity, or the instant non-
n Rule
Philippine territory, or case it is the sale of the tickets in the Philippines which is the activity that resid
service passengers produced the income. KIA’s income being derived from within is subject to ent
embarking from Philippine Philippine income tax. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW citize
airports. The firm is SCHOOLS ns,
represented in the and
Philippines by its general resid
 agent, Philippine Airlines
(PAL), a Philippine
corporation.KIA sells
airplane tickets through
PAL, and these tickets are
serviced by KIA airplanes
outside the Philippines. The
total sales of airline tickets
transacted by PAL for KIA in
1997 amounted to
P2,968,156.00. The
Commissioner of Internal
Revenue assessed KIA
deficiency income taxes at
ent
the rate of 35% on its
alien
taxable income, finding that
s
KIA's airline ticket sales
constituted income derived
from sources within the
Philippines.KIA filed a
protest on the ground that
the P2,968,156.00 should
be considered as income
derived exclusively from
sources outside the
Philippines since KIA only
serviced passengers outside
Philippine territory.Is the
position of KIA tenable?
Reasons. (4%)
Raffy and Wena, husband Exclu Excl
Income
and wife,are both ded ude
8 D. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Taxatio 2009
employed by XXX in d in
n
Corporation.After office the the
hours, they jointly manage sylla sylla
acoffee shop at the ground bus bus
floor of theirhouse. The
coffee shop is registered in
thename of both spouses.
Which of thefollowing is the
correct way to preparetheir
income tax return? Write
the letteronly. DO NOT
EXPLAIN YOUR ANSWER.
(2%)a. Raffy will declare as
his incomethe salaries of
both spouses, whileWena
will declare the income
fromthe coffee shop.b.
Wena will declare the
combinedcompensation
income of thespouses, and
Raffy will declare
theincome from the coffee
shop.c. All the income will
be declared byRaffy alone,
because only
oneconsolidated return is
required tobe filed by the
spouses.d. Raffy will declare
his owncompensation
income and Wenawill
declare hers. The
incomefrom the coffee
shop shall beequally
divided between them.Each
spouse shall be
taxedseparately on
 theircorresponding taxable
income tobe covered by
one consolidatedreturn for
the spouses.e. Raffy will
declare his
owncompensation income
and Wenawill declare hers.
The income fromthe coffee
shop shall be
equallydivided between
them. Raffy willfile one
income tax return to
coverall the income of both
spouses,and the tax is
computed on theaggregate
taxable income of
thespouses
9 YYY Corporation engaged No. The expense is deductible in the year it complies with the all-events test. Income Inco Test 2009
the services of the The test is considered met if the liability is fixed, and the amount such liability Taxatio me s in
Manananggol Law Firm in to pay is already fixed in 2007 when the services were rendered, and the n dete
2006 to defend the amount of such liability is determinable with reasonable accuracy in the same rmi
corporation's title over a year. Hence the deduction should have been claimed in 2007 and not in 2008. ning
property used in the UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS whe
business. For the legal ther
services rendered in 2007, inco
the law firm billed the me
corporation only in 2008. is
The corporation duly paid. earn
YYY Corporation claimed ed
this expense as a deduction for
from gross income in its tax
2008 return, because the pur
exact amount of the pos
expense was determined es
 only in 2008. Is YYY's claim
of deduction proper?
Reasons. (4%)
Ernesto, a Filipino citizen
and a practicing lawyer,
filed his income tax return
for 2007 claiming optional
standard deductions.
Realizing that he has
Ded
enough documents to
ucti
substantiate his profession- No. Since Ernesto has elected to claim
on
connected expenses, he optional standard deduction, said Gros
Income fro
1 now plans to file an election is irrevocable for the taxable s
Taxatio m 2009
0 amended income tax return year for which the return is made (Sec Inco
n Gro
for 2007, in order to claim 34(L), NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATION me
ss
itemized deductions, since OF LAW SCHOOLS
Inco
no audit has been
me
commenced by the BIR on
the return he previously
filed. Will Ernesto be
allowed to amend his
return? Why or why not?
(4%)
Johnny transferred a
I will advise the trustee that she has
valuable 10-door
nothing to pay in annual income taxes
commercial apartment to a
because the trust’s taxable income is
designated trustee, Miriam, Kind
zero. This is so because the amount of
naming in the trust Income Inco s of
1 income to be distributed annually to the
instrument Santino, Taxatio me taxp 2009
1 beneficiary is a deduction from the gross
Johnny's 10-year old son, as n Tax ayer
income of the trust but must be reported
the sole beneficiary. The s
as income of the beneficiary (Sec 61(A),
trustee is instructed to
NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATION
distribute the yearly rentals
OF LAW SCHOOLS
amounting to P720,000.00.
 The trustee consults you if
she has to pay the annual
income tax on the rentals
received from the
commercial
apartment.What advice will
you give the trustee?
Explain. (3%)
Johnny transferred a
valuable 10-door
commercial apartment to a
designated trustee, Miriam,
naming in the trust
instrument Santino,
Johnny's 10-year old son, as
the sole beneficiary. The
trustee is instructed to
distribute the yearly rentals No. The trustee has to pay the incometax in the trust’s net income
Kind
amounting to P720,000.00. determinedannually is the income is required to beaccumulated. Once a
Income Inco s of
1 The trustee consults you if taxable trust isestablished, its net income is eithertaxable to the trust,
Taxatio me taxp 2009
2 she has to pay the annual represented by thetrustee, or to the beneficiary dependingon the provision
n Tax ayer
income tax on the rentals for distribution ofincome following the one-layer taxationscheme (Sec 61 (A),
s
received from the NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
commercial apartment. Will
your advice be the same if
the trustee is directed to
accumulate the rental
income and distribute the
same only when the
beneficiary reaches the age
of majority? Why or why
not? (3%)
 Masarap Food Corporation
No. The protection of taxpayer’s brand
(MFC) incurred substantial
franchise is analogous to the
advertising expenses in Ded
maintenance of goodwill or title to one’s
order to protect its brand ucti
property which is in the nature of a
franchise for one of its line on
capital expenditure. An advertising Gros
products. In its income tax Income fro
1 expense as, of such nature does not s
return, MFC included the Taxatio m 2009
3 qualify as an ordinary business expense, Inco
advertising expense as n Gro
because the benefit to be enjoyed by the me
deduction from gross ss
taxpayer goes beyond one taxable year
income, claiming it as an Inco
(CIR v. General Foods Inc., 401 SCRA
ordinary business expense. me
545 (2003)).UP LAW COMPLEX & PHILIPPINE ASSOCIATION
Is MFC correct? Explain.
OF LAW SCHOOLS
(3%)
Miguel, a citizen and
resident of Mexico,
donated US$1,000.00
worth of stocks in Barack
Motors Corporation, a
Mexican company, to his
Miguel, a non-resident alien, is not Class
legitimate son, Miguelito, Dow
allowed any dowry exclusion. The dowry ifica
who is residing in the ry
1 applies only to a donor who is either a Donor’s tion
Philippines and about to be Excl 2009
4 citizen or resident of the Philippines Tax of
married to a Filipino usio
(Sec 101(A)(1), NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATION Don
girlfriend. Mexico does not n
OF LAW SCHOOLS or
impose any transfer tax of
whatever nature on all
gratuitous transfers of
property. Is Miguel entitled
to claim a dowry exclusion?
Why or why not? (3%)
Miguel, a citizen and No. The donation is not subject to thePhilippine donor’s tax because the Class Cov
1 resident of Mexico, donoris non-resident alien and the propertydonated is a property not situated Donor’s ifica erag
2009
5 donated US$1,000.00 in thePhilippines. The rule of reciprocityapplies only if the property Tax tion e of
worth of stocks in Barack transferredby a non-resident alien is an intangiblepersonal property situated of Don
 Motors Corporation, a
Mexican company, to his
legitimate son, Miguelito,
who is residing in the
Philippines and about to be or's
married to a Filipino Tax
in thePhilippines. This is designed toreciprocate the exemption from
girlfriend. Mexico does not (rul
donor’stax granted by a foreign country toFilipinos who are not residing Don
impose any transfer tax of e of
thereat.(Sec 104, NIRC) UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW or
whatever nature on all reci
SCHOOLS
gratuitous transfers of proc
property. Is Miguel entitled ity)
to the rule of reciprocity in
order to be exempt from
the Philippine donor's tax?
Why or why not? (3%)
1 In 1999, Xavier purchased Yes. The transmission of the property Estate Item Pro 2009
6 from his friend, Yuri, a from Xavier to Zandro is subject to the Tax s to pert
painting for P500,000.00. estate tax because this is a property be y
The fair market value (FMV) within Xavier’s control to dispose upon inclu pass
of the painting at the time his death. The composition of the gross ded ing
of the purchase was P1- estate pertains to properties owned and in und
million. Yuri paid all the existing as of the time of death and to be transferred by the owner by death gros er
corresponding taxes on the (Sec s the
transaction. In 2001, Xavier 85, NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION estat Gen
died. In his last will and OF LAW SCHOOLS e eral
testament, Xavier pow
bequeathed the painting, er
already worth P1.5-million, of
to his only son, Zandro. The app
will also granted Zandro the oint
power to appoint his wife, men
Wilma, as successor to the t
painting in the event of
Zandro's death. Zandro died
 in 2007, and Wilma
succeeded to the property.
Should the painting be
included in the gross estate
of Xavier in 2001 and thus,
be subject to estate tax?
Explain. (3%)
In 1999, Xavier purchased
from his friend, Yuri, a
painting for P500,000.00.
The fair market value (FMV)
of the painting at the time Tran
of the purchase was P1- smis
million. Yuri paid all the sion
Exe
corresponding taxes on the fro
mpti
transaction. In 2001, Xavier m
on
died. In his last will and first
of
testament, Xavier No. The transmission from the first heir,legatee or donee in favor of heir
certa
bequeathed the painting, anotherbeneficiary, in accordance with thedesire of the predecessor is an or
in
1 already worth P1.5-million, exempttransfer (Sec 87, NIRC). Zandro has nocontrol over the disposition of Estate don
acqu 2009
7 to his only son, Zandro. The theproperty at the time of his death; hence,the estate tax which imposed Tax ee
isitio
will also granted Zandro the theprivilege of transmitting properties uponhis death will not apply. UP LAW in
ns
power to appoint his wife, COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS favo
and
Wilma, as successor to the r of
trans
painting in the event of anot
missi
Zandro's death. Zandro died her
ons
in 2007, and Wilma ben
succeeded to the property. efici
Should the painting be ary
included in the gross estate
of Zandro in 2007 and thus,
be subject to estate tax?
Explain. (3%)
1 In 1999, Xavier purchased Vanishing deduction shall be allowed to Estate Ded Vani 2009
 from his friend, Yuri, a
painting for P500,000.00.
The fair market value (FMV)
of the painting at the time
of the purchase was P1-
million. Yuri paid all the
corresponding taxes on the
transaction. In 2001, Xavier
died. In his last will and
testament, Xavier
bequeathed the painting,
already worth P1.5-million,
8 Tax
to his only son, Zandro. The
will also granted Zandro the
power to appoint his wife,
Wilma, as successor to the
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
May a vanishing deduction
be allowed in either or both
of the estates? Explain.
(3%)
A taxpayer received an
assessment notice from the
BIR on February 3, 2009.
The following day, he filed a
1 protest, in the form of a
8 request for reinvestigation,
against the assessment and
submitted all relevant
documents in support of
the protest. On September
the estate of Xavier but only to the
extent of ½ of the property which is the
portion acquired by gifts (Sec 100,
NIRC). The donation took place within 5
years (1999 to 2001) from the death of
Xavier; hence, there is a vanishing
deduction. However, Zandro’s estate will
uctio shin
not be entitled to claim because, first
ns g
and foremost, the property previously
from Ded
taxed is not includable in his gross
Estat ucti
estate and second, even if it is
e on
includable, the present decedent died
more than 5 years from the death of the
previous decedent, and that a vanishing
deduction is already claimed by the
previous estate involving the same
property. UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS
The remedy of a taxpayer is to avail ofeither of two options:1. File a petition
for review withthe CTA within 30 days after the expiration of the 180- Taxp
dayperiod from submission of allrelevant documents; or2. Await the final ayer'
TAX Asse
decision of theCommissioner on the disputedassessment and appeal suchfinal s
REMEDI ssm 2009
decision to the CTAwithin 30 days after receipt ofa copy of such rem
ES ent
decision.These options are mutually exclusivesuch that resort to one bars edie
theapplication of the other (RCBC v. CIR,522 SCRA 144 (2007)). UP LAW s
COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
 11, 2009, the taxpayer,
apprehensive because he
had not yet received notice
of a decision by the
Commissioner on his
protest, sought your
advice.What remedy or
remedies are available to
the taxpayer? Explain. (4%)
1 In 1999, Xavier purchased Yes. The transmission of the property Estate Item Pro 2009
9 from his friend, Yuri, a from Xavier to Zandro is subject to the Tax s to pert
painting for P500,000.00. estate tax because this is a property be y
The fair market value (FMV) within Xavier’s control to dispose upon inclu pass
of the painting at the time his death. The composition of the gross ded ing
of the purchase was P1- estate pertains to properties owned and in und
million. Yuri paid all the existing as of the time of death and to be transferred by the owner by death gros er
corresponding taxes on the (Sec s the
transaction. In 2001, Xavier 85, NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION estat Gen
died. In his last will and OF LAW SCHOOLS e eral
testament, Xavier pow
bequeathed the painting, er
already worth P1.5-million, of
to his only son, Zandro. The app
will also granted Zandro the oint
power to appoint his wife, men
Wilma, as successor to the t
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
Should the painting be
included in the gross estate
of Xavier in 2001 and thus,
be subject to estate tax?
 Explain. (3%)
1 ABCD Corporation (ABCD) is Yes, The provision of a treaty must take precedence over and above the General Doct Tax 2009
9 a domestic corporation provisions of the local taxing statute consonant with the principle of Principl rines trea
with individual and international comity. Tax treaties are accepted limitations to the power of es OF in ties
corporate shareholders taxation. Thus, the CTA could apply the treaty provision so that the claim for Taxatio Taxa
who are residents of the refund representing the difference between the amount actually withheld and n tion
United States. For the paid to the BIR and the amount due and payable under the treaty, should be
2nd quarter of 1983, these granted. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
U.S.-based individual and
corporate stockholders
received cash dividends
from the corporation. The
corresponding withholding
tax on dividend income ---
30% for individual and 35%
for corporate non-resident
stockholders --- was
deducted at source and
remitted to the BIR.On May
15, 1984, ABCD filed with
the Commissioner of
Internal Revenue a formal
claim for refund, alleging
that under the RP-US Tax
Treaty, the deduction
withheld at source as tax on
dividends earned was fixed
at 25% of said income.
Thus, ABCD asserted that it
overpaid the withholding
tax due on the cash
dividends given to its non-
resident stockholders in the
U.S. The Commissioner
 denied the claim.On
January 17, 1985, ABCD
filed a petition with the
Court of Tax Appeals (CTA)
reiterating its demand for
refund. Is the contention of
ABCD Corporation correct?
Why or why not? (3%)
In 1999, Xavier purchased
from his friend, Yuri, a
painting for P500,000.00.
The fair market value (FMV)
of the painting at the time Tran
of the purchase was P1- smis
million. Yuri paid all the sion
Exe
corresponding taxes on the fro
No. The transmission from the first heir, mpti
transaction. In 2001, Xavier m
legatee or donee in favor of another on
died. In his last will and first
beneficiary, in accordance with the of
testament, Xavier heir
desire of the predecessor is an exempt certa
bequeathed the painting, or
transfer (Sec 87, NIRC). Zandro has no in
2 already worth P1.5-million, Estate don
control over the disposition of the acqu 2009
0 to his only son, Zandro. The Tax ee
property at the time of his death; hence, isitio
will also granted Zandro the in
the estate tax which imposed the ns
power to appoint his wife, favo
privilege of transmitting properties upon and
Wilma, as successor to the r of
his death will not apply. UP LAW COMPLEX & PHILIPPINE ASSOCIATION trans
painting in the event of anot
OF LAW SCHOOLS missi
Zandro's death. Zandro died her
ons
in 2007, and Wilma ben
succeeded to the property. efici
Should the painting be ary
included in the gross estate
of Zandro in 2007 and thus,
be subject to estate tax?
Explain. (3%)
 The inherent limitations on the power totax are:1. Taxation is for public
purpose. – Theproceeds of the tax must be used (a)for the support of the
State or (b) forsome recognized objective of thegovernment or to directly
promotethe welfare of the community.2. Taxation is inherently legislative.
Only the legislature has the fulldiscretion as to the persons,property,
occupation or business tobe axed provided these are all withinthe State’s
Inhe
territorial jurisdiction. ITcan also finally determine theamount or rate of tax, Scop
rent
the kind of taxto be imposed and the method ofcollection (1 Cooley 176- e
General Limi
Enumerate the four (4) 184).3. Taxation is territorial- Taxation maybe exercised only within and
Principl tati
2 inherent limitations on theterritorial jurisdiction, the taxingauthority (61 Am. Jur. 88). Withinthe Limit
es OF ons 2009
0 taxation. Explain each item territorial jurisdiction, the taxingauthority may determine the “placeof ation
Taxatio of
briefly. (4%) taxation” or “tax situs”.4. Taxation is subject to internationalcomity. – This is a of
n Tax
limitation which isfounded on reciprocity designed tomaintain harmonious Taxa
atio
and productiverelationships among the variousstate. Under international tion
n
comity, astate must recognize the generallyaccepted tenets of international
law,among which are the principles ofsovereign equality among states andof
their freedom from suit withouttheir consent, that limits thatauthority of a
government toeffectively impose taxes in asovereign state and
itsinstrumentalities,, as well as in its property held, and activitiesundertaken in
that capacity. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS

In 1999, Xavier purchased Vanishing deduction shall be allowed tothe estate of Xavier but only to Ded Vani
2 from his friend, Yuri, a theextent of ½ of the property which is theportion acquired by gifts (Sec Estate uctio shin
2009
1 painting for P500,000.00. 100,NIRC). The donation took place within 5years (1999 to 2001) from the Tax ns g
The fair market value (FMV) death ofXavier; hence, there is a vanishingdeduction. However, Zandro’s from Ded
 of the painting at the time
of the purchase was P1-
million. Yuri paid all the
corresponding taxes on the
transaction. In 2001, Xavier
died. In his last will and
testament, Xavier
bequeathed the painting,
estate willnot be entitled to claim because, firstand foremost, the property
already worth P1.5-million,
previouslytaxed is not includable in his grossestate and second, even if it
to his only son, Zandro. The
isincludable, the present decedent diedmore than 5 years from the death of Estat ucti
will also granted Zandro the
theprevious decedent, and that a vanishingdeduction is already claimed by e on
power to appoint his wife,
theprevious estate involving the sameproperty. UP LAW COMPLEX &
Wilma, as successor to the
PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
May a vanishing deduction
be allowed in either or both
of the estates? Explain.
(3%)
False. Tax is a pecuniary burden payable in money, but backpay certificates General How
Stag
A law that allows taxes to may be used in payment of tax. (Borja v. Gella, 8 SCRA 602) The taxpayer is Principl taxe
2 es of
be paid either in cash or in not allowed to settle his tax liability by conveying property (real or personal) in es OF s 2009
1 Taxa
kind is valid. True or False view of the problem of assigning value to such property. REVIEWER ON Taxatio are
tion
TAXATION - MAMALATEO n paid
In 1999, Xavier purchased Yes. The transmission of the property Item Pro
from his friend, Yuri, a from Xavier to Zandro is subject to the s to pert
painting for P500,000.00. estate tax because this is a property be y
2 The fair market value (FMV) within Xavier’s control to dispose upon Estate inclu pass
2009
2 of the painting at the time his death. The composition of the gross Tax ded ing
of the purchase was P1- estate pertains to properties owned and in und
million. Yuri paid all the existing as of the time of death and to be transferred by the owner by death gros er
corresponding taxes on the (Sec s the
 transaction. In 2001, Xavier
died. In his last will and
testament, Xavier
bequeathed the painting,
already worth P1.5-million,
Gen
to his only son, Zandro. The
eral
will also granted Zandro the
pow
power to appoint his wife,
er
Wilma, as successor to the 85, NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION estat
of
painting in the event of OF LAW SCHOOLS e
app
Zandro's death. Zandro died
oint
in 2007, and Wilma
men
succeeded to the property.
t
Should the painting be
included in the gross estate
of Xavier in 2001 and thus,
be subject to estate tax?
Explain. (3%)
2 In 1999, Xavier purchased No. The transmission from the first heir,legatee or donee in favor of Estate Exe Tran 2009
3 from his friend, Yuri, a anotherbeneficiary, in accordance with thedesire of the predecessor is an Tax mpti smis
painting for P500,000.00. exempttransfer (Sec 87, NIRC). Zandro has nocontrol over the disposition of on sion
The fair market value (FMV) theproperty at the time of his death; hence,the estate tax which imposed of fro
of the painting at the time theprivilege of transmitting properties uponhis death will not apply. UP LAW certa m
of the purchase was P1- COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS in first
million. Yuri paid all the acqu heir
corresponding taxes on the isitio or
transaction. In 2001, Xavier ns don
died. In his last will and and ee
testament, Xavier trans in
bequeathed the painting, missi favo
already worth P1.5-million, ons r of
to his only son, Zandro. The anot
will also granted Zandro the her
power to appoint his wife, ben
 Wilma, as successor to the
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
Should the painting be
included in the gross estate
of Zandro in 2007 and thus,
be subject to estate tax?
Explain. (3%)
2 In 1999, Xavier purchased
4 from his friend, Yuri, a
painting for P500,000.00.
The fair market value (FMV)
of the painting at the time
of the purchase was P1-
million. Yuri paid all the
corresponding taxes on the
transaction. In 2001, Xavier
died. In his last will and
testament, Xavier
bequeathed the painting,
already worth P1.5-million,
to his only son, Zandro. The
will also granted Zandro the
power to appoint his wife,
Wilma, as successor to the
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
May a vanishing deduction
be allowed in either or both
of the estates? Explain.
efici
ary
Vanishing deduction shall be allowed to Estate Ded Vani 2009
the estate of Xavier but only to the Tax uctio shin
extent of ½ of the property which is the ns g
portion acquired by gifts (Sec 100, from Ded
NIRC). The donation took place within 5 Estat ucti
years (1999 to 2001) from the death of e on
Xavier; hence, there is a vanishing
deduction. However, Zandro’s estate will
not be entitled to claim because, first
and foremost, the property previously
taxed is not includable in his gross
estate and second, even if it is
includable, the present decedent died
more than 5 years from the death of the
previous decedent, and that a vanishing
deduction is already claimed by the
previous estate involving the same
property. UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS
 (3%)
In 1999, Xavier purchased
from his friend, Yuri, a
painting for P500,000.00.
The fair market value (FMV)
of the painting at the time
Pro
of the purchase was P1-
pert
million. Yuri paid all the
y
corresponding taxes on the
pass
transaction. In 2001, Xavier Item
ing
died. In his last will and s to
und
testament, Xavier Yes. The transmission of the propertyfrom Xavier to Zandro is subject to be
er
bequeathed the painting, theestate tax because this is a propertywithin Xavier’s control to dispose inclu
the
2 already worth P1.5-million, uponhis death. The composition of the grossestate pertains to properties Estate ded
Gen 2009
5 to his only son, Zandro. The owned andexisting as of the time of death and to be transferred by the owner Tax in
eral
will also granted Zandro the by death (Sec85, NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW gros
pow
power to appoint his wife, SCHOOLS s
er
Wilma, as successor to the estat
of
painting in the event of e
app
Zandro's death. Zandro died
oint
in 2007, and Wilma
men
succeeded to the property.
t
Should the painting be
included in the gross estate
of Xavier in 2001 and thus,
be subject to estate tax?
Explain. (3%)
In 1999, Xavier purchased No. The transmission from the first heir, Exe Tran
from his friend, Yuri, a legatee or donee in favor of another mpti smis
painting for P500,000.00. beneficiary, in accordance with the on sion
2 Estate
The fair market value (FMV) desire of the predecessor is an exempt of fro 2009
6 Tax
of the painting at the time transfer (Sec 87, NIRC). Zandro has no certa m
of the purchase was P1- control over the disposition of the in first
million. Yuri paid all the property at the time of his death; hence, acqu heir
 corresponding taxes on the
transaction. In 2001, Xavier
died. In his last will and
testament, Xavier
bequeathed the painting, or
already worth P1.5-million, don
to his only son, Zandro. The ee
isitio
will also granted Zandro the in
the estate tax which imposed the ns
power to appoint his wife, favo
privilege of transmitting properties upon and
Wilma, as successor to the r of
his death will not apply. UP LAW COMPLEX & PHILIPPINE ASSOCIATION trans
painting in the event of anot
OF LAW SCHOOLS missi
Zandro's death. Zandro died her
ons
in 2007, and Wilma ben
succeeded to the property. efici
Should the painting be ary
included in the gross estate
of Zandro in 2007 and thus,
be subject to estate tax?
Explain. (3%)
In 1999, Xavier purchased
from his friend, Yuri, a
painting for P500,000.00.
Vanishing deduction shall be allowed tothe estate of Xavier but only to
The fair market value (FMV)
theextent of ½ of the property which is theportion acquired by gifts (Sec
of the painting at the time
100,NIRC). The donation took place within 5years (1999 to 2001) from the Ded Vani
of the purchase was P1-
death ofXavier; hence, there is a vanishingdeduction. However, Zandro’s uctio shin
million. Yuri paid all the
2 estate willnot be entitled to claim because, firstand foremost, the property Estate ns g
corresponding taxes on the 2009
7 previouslytaxed is not includable in his grossestate and second, even if it Tax from Ded
transaction. In 2001, Xavier
isincludable, the present decedent diedmore than 5 years from the death of Estat ucti
died. In his last will and
theprevious decedent, and that a vanishingdeduction is already claimed by e on
testament, Xavier
theprevious estate involving the sameproperty. UP LAW COMPLEX &
bequeathed the painting,
PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
already worth P1.5-million,
to his only son, Zandro. The
will also granted Zandro the
 power to appoint his wife,
Wilma, as successor to the
painting in the event of
Zandro's death. Zandro died
in 2007, and Wilma
succeeded to the property.
May a vanishing deduction
be allowed in either or both
of the estates? Explain.
(3%)
Com
When the financial position
pro
of the taxpayer True. Financial incapacity is a ground
mise
demonstrates a clear allowed by law in order that the Com
TAX and
2 inability to pay the tax, the Commissioner of Internal Revenue may pro
REMEDI Abat 2009
8 Commissioner of Internal validly compromise a tax liability. (Sec mis
ES eme
Revenue may validly 204, NIRC) UP LAW COMPLEX & PHILIPPINE ASSOCIATION e
nt of
compromise the tax OF LAW SCHOOLS
Taxe
liability. True or False
s
The doctrine of equitable True. The doctrine arose from common law allowing offsetting of a prescribed
Taxp
recoupment allows a claim for refund against a tax liability arising from the same transaction on
ayer'
taxpayer whose claim for which an overpayment is made and underpayment is due. The doctrine finds TAX Coll
2 s
refund has prescribed to no applicable to cases where the taxes involved are totally unrelated, and REMEDI ecti 2009
9 rem
offset tax liabilities with his although it seems equitable, it is not allowed in our jurisdiction.UP LAW ES on
edie
claim of overpayment. True COMPLEX & PHILIPPINE ASSOCIATION
s
or False OF LAW SCHOOLS
 False
,
Filin
frau
False. There is a different between afalse return and a fraudulent return. g of
dule
Thefirst merely implies a deviation from thetruth or fact whether intentional retu
A false return and a TAX nt,
3 or not,whereas the second is intentional anddeceitful with the aim of evading rn
fraudulent return are one REMEDI and 2009
0 thecorrect tax due (Aznar v. Commissioner,GR NO. L-20569, Aug 23, 1974, 58 and
and the same. True or False ES non-
SCRA519 (1974)). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW pay
filing
SCHOOLS men
of
t
retur
ns
3 ABCD Corporation (ABCD) is Yes. A withholding agent is not only an TAX Taxp Refu 2009
1 a domestic corporation agent of the Government but is also an REMEDI ayer' nd
with individual and agent of the taxpayer/income earner. ES s
corporate shareholders Hence, ABCD is also an agent of the rem
who are residents of the beneficial owner of the dividends with edie
United States. For the respect to the actual payment of the tax s
2nd quarter of 1983, these to the Government, such authority may
U.S.-based individual and reasonably be held to include the authority to file a claim for refund and
corporate stockholders to bring an action for recovery of such
received cash dividends claim (CIR v. Procter & Gamble, 204
from the corporation. The SCRA 377, (1991)). UP LAW COMPLEX & PHILIPPINE ASSOCIATION
corresponding withholding OF LAW SCHOOLS
tax on dividend income ---
30% for individual and 35%
for corporate non-resident
stockholders --- was
deducted at source and
remitted to the BIR.On May
15, 1984, ABCD filed with
the Commissioner of
Internal Revenue a formal
claim for refund, alleging
that under the RP-US Tax
 Treaty, the deduction
withheld at source as tax on
dividends earned was fixed
at 25% of said income.
Thus, ABCD asserted that it
overpaid the withholding
tax due on the cash
dividends given to its non-
resident stockholders in the
U.S. The Commissioner
denied the claim.On
January 17, 1985, ABCD
filed a petition with the
Court of Tax Appeals (CTA)
reiterating its demand for
refund. Does ABCD
Corporation have the legal
personality to file the
refund on behalf of its non-
resident stockholders? Why
or why not? (3%)
3 A final assessment notice Yes. The protest was filed out of time,hence the CTA does not TAX Taxp Asse 2009
2 was issued by the BIR on acquirejurisdiction over the matter (CIR v. AtlasMining and Development Corp. REMEDI ayer' ssm
June 13, 2000, and received (2000)). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS ES s ent
by the taxpayer on June 15, rem
2000. The taxpayer edie
protested the assessment s
on July 31, 2000. The
protest was initially given
due course, but was
eventually denied by the
Commissioner of Internal
Revenue in a decision dated
June 15, 2005. The taxpayer
 then filed a petition for
review with the Court of
Tax Appeals (CTA), but the
CTA dismissed the same. Is
the CTA correct in
dismissing the petition for
review? Explain your
answer. (4%)
A final assessment notice
was issued by the BIR on
June 13, 2000, and received
by the taxpayer on June 15,
2000. The taxpayer
protested the assessment
on July 31, 2000. The
protest was initially given
No. The protest was filed out of time
due course, but was
and, therefore, did not suspend the
eventually denied by the
running of the prescriptive period for the Taxp
Commissioner of Internal
collection of the tax. Once the right to ayer'
Revenue in a decision dated TAX Coll
3 collect has prescribed, the Commissioner s
June 15, 2005. The taxpayer REMEDI ecti 2009
3 can no longer enforce collection of the rem
then filed a petition for ES on
tax liability against the taxpayer (CIR v. edie
review with the Court of
Atlas Mining and Development Corp. s
Tax Appeals (CTA), but the
(2000)). UP LAW COMPLEX & PHILIPPINE ASSOCIATION
CTA dismissed the same.
OF LAW SCHOOLS
Assume that the CTA's
decision dismissing the
petition for review has
become final. May the
Commissioner legally
enforce collection of the
delinquent tax? Explain.
(4%)
1 What is the basis for the The business tax on contractors is a Local Spec Tax 2010
 ific
taxin
graduated annual fixed tax based on the g on
gross receipts for the preceding calendar pow vari
computation of business year. However, when the gross receipts Govern er of ous
tax on contractors under amount to P2 million or more, the ment Local type
the Local Government business tax on contractors is imposed Taxatio Gov s of
Code? (2%) as a percentage tax at the rate of 50% of n ern busi
1% (Sec 143 (e), LGC) UP LAW COMPLEX & PHILIPPINE ASSOCIATION men ness
OF LAW SCHOOLS t es
Unit
s
Spec
ific
taxin
Tax
g
Retiring businesses under the LGC aretaxed in their gross sales or on
Local pow
grossreceipts in the current year and not inthe preceding year. If the tax paid reitr
How are retiring businesses Govern er of
in thecurrent year is less than the tax due ongross sales or receipts of the eme
2 taxed under the Local ment Local 2010
currentyear, the difference shall be paid beforethe business is considered nt
Government Code? (2%) Taxatio Gov
officiallyretired (Sec 145, LGC). UP LAW COMPLEX & PHILIPPINE of
n ern
ASSOCIATIONOF LAW SCHOOLS busi
men
ness
t
Unit
s
3 On May 15, 2009, La Manga The protest was filed on time. The Local Taxp Prot 2010
Trading Corporation taxpayer has the right to protest an Govern ayer' est
received a deficiency assessment within 60 days from receipt ment s of
business tax assessment of thereof (Sec 195, LGC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION Taxatio rem Asse
P1,500,000.00 from the OF LAW SCHOOLS n edie ssm
Pasay City Treasurer. On s ent
June 30, 2009, the (Loc
corporation contested the al
assessment by filing a Taxe
 written protest with the
City Treasurer. On October
10, 2009, the corporation
received a collection letter
from the City Treasurer,
drawing it to file on
s)
October 25, 2009 an appeal
against the assessment
before the Pasay Regional
Trial Court (RTC).Was the
protest of the corporation
filed on time? Explain. (3%)
On May 15, 2009, La Manga
Trading Corporation
received a deficiency
The appeal was not filed on time. When
business tax assessment of
an assessment is protested, the treasurer
P1,500,000.00 from the
has 60 days within which to decide. The
Pasay City Treasurer. On
taxpayer has 30 days from receipt of the Taxp
June 30, 2009, the
denial of the protest or from the lapse of ayer'
corporation contested the
the 60-day period to decide whichever s Prot
assessment by filing a Local
comes first, otherwise the assessment rem est
written protest with the Govern
becomes conclusive and unappeallable. edie of
4 City Treasurer. On October ment 2010
Since no decision becomes conclusive s Asse
10, 2009, the corporation Taxatio
and unappeallable. Since no decision on (Loc ssm
received a collection letter n
the protest was made, the taxpayer al ent
from the City Treasurer,
should have appealed to the RTC within Taxe
drawing it to file on
30 days from the lapse of the period to s)
October 25, 2009 an appeal
decide the protest (Sec 195, LGC). UP LAW COMPLEX & PHILIPPINE
against the assessment
ASSOCIATION
before the Pasay Regional
OF LAW SCHOOLS
Trial Court (RTC). Was the
appeal with the Pasay RTC
filed on time? Explain. (3%)
 Ferremaro, Inc., a
manufacturer
ofhandcrafted shoes,
maintains its principaloffice
in Cubao, Quezon City. It
Twenty five percent (25%) of total salesor P2.5 million shall be taxed in
hasbranches/sales offices in Spec
Cebuand 15% of total sales or P1.5 millionshall be taxed in Davao. For the
Cebu and Davao.Its factory ific
remaining 60% sales amounting to P6million which are recorded in
is located in Marikina City taxin
theprincipal office, 30% thereof or P1.8million is taxable in Quezon City
wheremost of its workers g
wherethe principal office is located and 70% orP4.2 million is taxable in Situ
live. Its principal officein Local pow
Marikina Citywhere the factory is located.Under the law, s of
Quezon City is also a sales Govern er of
manufacturersmaintaining a branch or sales outletshall record the sale in the tax
5 office.Sales of finished ment Local 2010
branch orsales outlet making the sale and pay thetax in the city or coll
products for calendar Taxatio Gov
municipality where thebranch or outlet is located. SinceFerremaro, Inc. ecte
year2009 in the amount of n ern
maintains one factory,the sales recorded in the principal officeshall be d
P10 million weremade at men
allocated and 30% of said salesare taxable in the place where theprincipal
the following locations:i) t
office is located while 70% istaxable in the place where the factory islocated
Cebu branch 25%ii) Davao Unit
(Sec. 150, LGC). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW
branch 15%iii) Quezon City s
SCHOOLS
branch 60%Total
100%Where should the
applicable local taxes onthe
shoes be paid? Explain.
(3%)

XYZ Shipping Corporation is Com Com

a branch of an international No, Manila cannot legally levy the 2%Gross Receipts Tax on the shipping Local mon mon
shipping line with voyages line,because taxes on the gross receipts oftransportation contractors Govern Limit Limi
6 between Manila and the andpassengers or freight by hire andcommon carriers by air, land or water isa ment ation tati 2010
West Coast of the U.S. The limitation on the exercise of taxingpowers by local government units (Sec133 Taxatio s on ons
company’s vessels load and (j), LGC). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS n the on
unload cargoes at the Port taxin the
 of Manila, albeit it does not
have a branch or sales
office in Manila. All the bills
of lading and invoices are
issued by the branch office
in Makati which is also the
taxi
company’s principal g
ng
office.The City of Manila pow
pow
enacted an ordinance ers
ers
levying a 2% tax on gross of
of
receipts of shipping lines LGU
LGU
using the Port of
Manila.Can the City
Government of Manila
legally impose said levy on
the corporation? Explain.
(3%)
Excl
The all event test is a test applied in realization of income and expense by usio
accrual basis taxpayer. The test liability, to warrant the inclusion of the income Income ns
What is the "all events Inco
7 or expense in the gross income or deductions during the taxable year. UP LAW Taxatio fro 2010
test"? Explain briefly. (2%) me
COMPLEX & PHILIPPINE ASSOCIATION n m
OF LAW SCHOOLS esta
te
 The “immediacy test” is applied todetermine whether the accumulation
ofafter tax profits by a domestic orresident foreign corporation is really forthe Tim
Taxa
reasonable needs of the business.Under this test, the reasonable needs ofthe e
tion
business are construed to mean theimmediate needs of the business,including and
of
reasonably anticipated needs.The corporation should be able to provean Income Tran
What is the "immediacy dom
8 immediate need for the accumulationof earnings and profits, or the Taxatio sfer 2010
test"? Explain briefly. (2%) estic
directcorrelation of anticipated needs to suchaccumulation of profits to justify n of
corp
thesaid accumulation (Sec 3, RR No. 2-2001;Mertens, Law of Federal Pro
orati
IncomeTaxation, Vol. 7, Chapter 39, p. 103,cited in Manila Wine Merchants, per
ons
Inc. v.CIR, G.R. No. L-26145, Feb. 20, 1984) UP LAW COMPLEX & PHILIPPINE ties
ASSOCIATIONOF LAW SCHOOLS

Mirador, Inc., a domestic

corporation,filed its Annual
Income Tax Return for
Excl
itstaxable year 2008 on B It may claim as refund the amountof P500,000 representing its incometax
usio
April 15, 2009. In overpayment for its taxable year2009. Since the taxpayer has optedto carry- Taxa
Income ns
theReturn, it reflected an over the P1 million overpaidincome tax for taxable year 2008,said option is ble
9 Taxatio fro 2010
income taxoverpayment of considered irrevocableand no application for cash refundshall be allowed for it Peri
n m
P1,000,000.00 andindicated (Sec 76, NIRC;CIR v. Bank of Philippine Island,G.R. No. 178490, July 7, 2009).UP od
esta
its choice to carry-over LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
te
theoverpayment as an
automatic tax creditagainst
its income tax liabilities
insubsequent years.On
April 15, 2010, it filed its
AnnualIncome Tax Return
for its taxable year
2009reflecting a taxable
loss and an income
taxoverpayment for the
current year 2009 inthe
amount of P500,000.00 and
its incometax overpayment
for the prior year 2008
ofP1,000,000.00.In its 2009
Return, the
corporationindicated its
option to claim for refund
thetotal income tax
overpayment
ofP1,500,000.00Choose
which of the following
statements iscorrect.a.
Mirador, Inc. may claim as
refundthe total income tax
overpayment
ofP1,500,000.00 reflected
in itsincome tax return for
its taxableyear 2009;b. It
may claim as refund
theamount of
P500,000.00representing its
income taxoverpayment for
its taxable year2009; or c.
No amount may be claimed
asrefund.Explain the basis
of your answer.(5%)
 Taxa
tion
of
resid
ent Tim
citize e
Gains realized by the
ns, and
investor upon redemption
Income non- Tran
1 of shares of stock in a
True. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio resid sfer 2010
0 mutual fund company are
n ent of
exempt from income tax.
citize Pro
True or False (1%)
ns, per
and ties
resid
ent
alien
s
Excl
A corporation can claim the
usio
optional standard Gros
Income ns
1 deduction equivalent to s
False. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio fro 2010
1 40% of its gross sales or Inco
n m
receipts, as the case may me
esta
be. True or False (1%)
te
Premium payment for
Tim
health insurance of an
e
individual who is an
and
employee in an amount of Gros
Income Tran
1 P2,500 per year may be s
False. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio sfer 2010
2 deducted from gross Inco
n of
income if his gross salary me
Pro
per year is not more than
per
P250,000. True or False
ties
(1%)
 The Tax Code allows an
individual taxpayer to pay
Excl
in two equal installments,
usio
the first installment to be Taxa
Income ns
1 paid at the time the return ble
True. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio fro 2010
3 is filed, and the second on Peri
n m
or before July 15 of the od
esta
same year, if his tax due
te
exceeds P2,000. True or
False (1%)
Tim
e
An individual taxpayer can and
adopt either the calendar Income Inco Tran
1
or fiscal period for purposes False. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio me sfer 2010
4
of filing his income tax n Tax of
return. (1%) Pro
per
ties
Det
ermi
nati
Taxa
The capitalization rules on
tion
may be resorted to by the of
of
BIR in order to compel Income Gro
1 dom
corporate taxpayers to True. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio ss 2010
5 estic
declare dividends to their n Esta
corp
stockholders regularly. True te
orati
or False (1%) and
ons
Net
Esta
te
1 Informer’s reward is subject Income Gros Det
True. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) 2010
6 to a final withholding tax of Taxatio s ermi
 nati
on
of
Gro
ss
Inco
10%. True or False (1%) n Esta
me
te
and
Net
Esta
te
Det
A non-resident alien who ermi
stays in the Philippines for nati
less than 180 days during on
the calendar year shall be of
Gros
entitled to personal Income Gro
1 s
exemption not to exceed False. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio ss 2010
7 Inco
the amount allowed to n Esta
me
citizens of the Philippines te
by the country of which he and
is subject or citizen. True or Net
False (1%) Esta
te
A is a travelling salesman Det
working full time for Nu ermi
A is not entitled to claim a casualty lossbecause all of his income partake
Skin Products. He receives a nati
thenature of compensation income.Taxpayers earning compensation
monthly salary plus 3% Gros on
incomearising from personal services under anemployee-employer Income
1 commission on his sales in a s of
relationship are notallowed to claim deduction except thatallowed under Sec Taxatio 2010
8 Southern province where Inco Gro
34(M) referring only tothe P2,400 health and/or hospitalizationinsurance n
he is based. He regularly me ss
premium; perforce the claimof casualty loss has no legal basis (Sec34, NIRC).
uses his own car to Esta
UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
maximize his visits even to te
far flung areas. One fine and
 day a group of militants
seized his car. He was
notified the following day
by the police that the
marines and the militants
Net
had a bloody encounter and
Esta
his car was completely
te
destroyed after a grenade
hit it.A wants to file a claim
for casualty loss. Explain
the legal basis of your tax
advice. (3%)
In 2009, Caruso, a resident
Filipino citizen, received
dividend income from a
U.S.-based corporation
which owns a chain of
Ded
Filipino restaurants in the Caruso has the option either to claim
ucti
West Coast, U.S.A. The the amount of income tax withheld in Gros
Income ons
1 dividend remitted to Caruso U.S. as deduction from his gross income s
Taxatio fro 2010
9 is subject to U.S. in the Philippines, or to claim it as a tax Inco
n m
withholding tax with credit (Sec 34 (C )(1)(b), NIRC).UP LAW COMPLEX & PHILIPPINE ASSOCIATION me
Esta
respect to a non-resident OF LAW SCHOOLS
te
alien like Caruso. What will
be your advice to Caruso in
order to lessen the impact
of possible double taxation
on the same income? (3%)
In 2009, Caruso, a resident Taxa Ded
Filipino citizen, received No. The income abroad of a nonresident citizen is exempt from the Philippine tion ucti
Income
2 dividend income from a income tax; hence there is no international double taxation on said income. of ons
Taxatio 2010
0 U.S.-based corporation UP LAW COMPLEX & PHILIPPINE ASSOCIATION resid fro
n
which owns a chain of OF LAW SCHOOLS ent m
Filipino restaurants in the citize Esta
 West Coast, U.S.A. The
dividend remitted to Caruso
ns,
is subject to U.S.
non-
withholding tax with
resid
respect to a non-resident
ent
alien like Caruso. Would
citize
your answer in A. be the
ns, te
same if Caruso became a
and
U.S. immigrant in 2008 and
resid
had become a non-resident
ent
Filipino citizen? Explain the
alien
difference in treatment for
s
Philippine income tax
purposes. (3%)
2 ABC, a domestic The amount payable under the agreement is in the nature of royalty. The term Income Gros Ded 2010
1 corporation, entered into a royalty is broad enough to include compensation for the use of an intellectual Taxatio s ucti
software license agreement property and supply of technical know-how as a means of enabling application n Inco ons
with XYZ, a non-resident or enjoyment of any such property or right (Sec 42(4), NIRC).The royalties paid me fro
foreign corporation based to the non-resident U.S. corporation, equivalent to 5% of therevenues derived m
in the U.S. Under the by ABC for the use ofthe program in the Philippines, issubject to a 30% final Esta
agreement which the withholding tax,unless a lower tax rate is prescribedunder an existing tax te
parties forged in the U.S., treaty. (Sec28(B)(1), NIRC). UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF
XYZ granted ABC the right LAW SCHOOLS
to use a computer system
program and to avail of
technical know-how
relative to such program. In
consideration for such
rights, ABC agreed to pay
5% of the revenues it
receives from customers
who will use and apply the
program in the Philippines.
Discuss the tax implication
 of the transaction. (5%)
2 Don Sebastian, single but All the properties and interestsenumerated in the problem should beincluded Estate Com Ded 2010
2 head of the family, Filipino, in the gross estate if thedecedent. The composition of a grossestate of a Tax posi ucti
and resident of Pasig City, decedent who is a citizen ofthe Philippines includes all properties,tangible or tion ons
died intestate on November intangible, wherever situatedand to the extent of the interest that hehas of fro
15, 2009. He left the thereon at the time of his death (Sec85, NIRC). UP LAW COMPLEX & Gros m
following properties and PHILIPPINE ASSOCIATIONOF LAW SCHOOLS s Esta
interests: House and lot Estat te
(family home) in Pasig P e
800,000 Vacation house
and lot in Florida, USA
1,500,000Agricultural
landin Naic, Cavite which he
inherited from his father
2,000,000 Car which isbeing
used by his brother in
Cavite 500,000 Proceeds of
life insurance where he
named his estate as
irrevocable beneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stock in ABC Corp, a
domestic enterpriseThe
expenses and charges in
the estate are as
follows:Funeral Expenses P
250,000Legal fees for the
settlement of the estate
500,000Medical expenses
 of last illness 600,000Claims
against the estate
300,000The compulsory
heirs of Don Sebastian
approach you and seek
your assistance in the
settlement of his estate for
which they have agreed to
the above-stated
professional fees. a. What
are the properties and
interests that should be
included in the
computation of the gross
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
Com
City,died intestate on The net taxable extent of the decedent is P3,700,000.00. From the gross Dete
mon
November 15, 2009. Heleft estate of P7 million the following deductions are allowed: (1) funeral expenses rmin
Limi
the following properties of P200,000 which is the maximum allowed by law; (2) legal fees amounting to ation
tati
and interests:House and P500,000; (3) medical expenses not to exceed P500,000; (4) Claims against the of
ons
lot(family home) inPasig P estate of P300,000; (5) family homeequivalent to its fair market value (not to gros
on
2 800,000Vacation houseand exceed P1 million) of P800,000; and (6) standard deduction of P1 million, or a Estate s
the 2010
3 lot inFlorida, USA total allowable deduction of P3,300,000.00 (Sec 86, NIRC).The claim against Tax estat
taxi
1,500,000Agricultural the cousin amounting to P100, 000, although included in the gross estate, e
ng
landin Naic, Cavitewhich cannot be claimed as a deduction because the debtor is not yet declared and
pow
heinherited fromhis insolvent. Likewise, the inherited property cannot give rise to a vanishing net
ers
father2,000,000Car which deduction for want of sufficient factual basis (Sec 86, NIRC).UP LAW COMPLEX estat
of
isbeing used byhis brother & PHILIPPINE ASSOCIATION OF LAW SCHOOLS e
LGU
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
 asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.b.
What is the net taxable
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but The filing of the return and payment ofthe tax is within 6 months from date Estat Valu
head of thefamily, Filipino, ofdeath following the pay-as-you-fileconcept. The period to file return e atio
2 Estate
and resident of Pasig isextendible for a maximum of 30 daysunder meritorious cases as Tax n of 2010
4 Tax
City,died intestate on maybedetermined by the Commissioner. Thepayment of the estate tax may Retu gifts
November 15, 2009. Heleft also beextended when the Commissioner findsthat the payment of the tax on rn mad
the following properties the duedate would impose undue hardship onthe estate or any of the heirs. e in
and interests:House and The periodof extension to pay shall not exceed 5years if the estate is settled pro
lot(family home) inPasig P through thecourts, or shall not exceed 2 years ifsettled extrajudicially. pert
800,000Vacation houseand TheCommissioner may require the executor,or administrator, or the y
lot inFlorida, USA beneficiary tofurnish a bond in an amount not morethan double the amount
1,500,000Agricultural of estate taxdue (Sec 91, NIRC). UP LAW COMPLEX & PHILIPPINE
landin Naic, Cavitewhich ASSOCIATIONOF LAW SCHOOLS
heinherited fromhis
father2,000,000Car which
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
 seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees. c.
When is the due date for
filing and payment of the
applicable tax return and
tax? Are these dates
extendible? If so, under
what conditions or
requirements? (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
If the renunciation is a generalrenunciation such that the share of theheir who Effe
the following properties
waives his right to theinheritance goes to the other co-heirs inaccordance with ct of
and interests:House and
their respective interestin the inheritance, the law on accretionapplies and the ren
lot(family home) inPasig P Com
property waived isconsidered to pass through the other coheirs by unci
800,000Vacation houseand posi
inheritance; hence, it has no taximplication. Undoubtedly, when atio
lot inFlorida, USA tion
thecompulsory heir renounced his share inthe inheritance, he did not donate n/w
2 1,500,000Agricultural Estate of
theproperty which did not become his. Suchbeing the case, the renunciation is aive 2010
5 landin Naic, Cavitewhich Tax Gros
notsubject to the donor’s tax. If it is not ageneral renunciation in favor of r of
heinherited fromhis s
theother co-heirs, the heir renouncing hisright is considered to have made inhe
father2,000,000Car which Estat
adonation and the renunciation is subjectto donor’s tax. In both cases, rita
isbeing used byhis brother e
however,the renunciation has no tax implicationto the other co-heirs (BIR nce
inCavite 500,000Proceeds
Ruling No. DA(DT-039) 396-09, dated July 23, 2009).UP LAW COMPLEX & by
of lifeinsurance wherehe
PHILIPPINE ASSOCIATIONOF LAW SCHOOLS heir
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
 acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.d. If
X, one of the compulsory
heirs, renounces his share
in the inheritance in favor
of the other co-heirs, is
there any tax implication of
X’s renunciation? What
about the other coheirs?
(2.5%)
Don Sebastian, single but All the properties and interestsenumerated in the problem should beincluded Com Wit
2 head of thefamily, Filipino, in the gross estate if thedecedent. The composition of a grossestate of a Estate posi h
2010
6 and resident of Pasig decedent who is a citizen ofthe Philippines includes all properties,tangible or Tax tion resp
City,died intestate on intangible, wherever situatedand to the extent of the interest that hehas of ect
November 15, 2009. Heleft thereon at the time of his death (Sec85, NIRC). UP LAW COMPLEX & Gros to
the following properties PHILIPPINE ASSOCIATIONOF LAW SCHOOLS s resi
and interests:House and Estat den
lot(family home) inPasig P e t
800,000Vacation houseand citiz
lot inFlorida, USA en
1,500,000Agricultural
landin Naic, Cavitewhich
heinherited fromhis
father2,000,000Car which
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
 Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees. a.
What are the properties
and interests that should be
included in the
computation of the gross
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
the following properties The net taxable extent of the decedent isP3,700,000.00. From the gross estate
and interests:House and ofP7 million the following deductions areallowed: (1) funeral expenses of
lot(family home) inPasig P P200,000 which is the maximum allowedby law; (2) legal fees amounting
Ded
800,000Vacation houseand toP500,000; (3) medical expenses not toexceed P500,000; (4) Claims against Ded
ucti
lot inFlorida, USA theestate of P300,000; (5) family homeequivalent to its fair market value uctio
ons
2 1,500,000Agricultural (notto exceed P1 million) of P800,000; and(6) standard deduction of P1 Estate ns
fro 2010
7 landin Naic, Cavitewhich million, or atotal allowable deduction ofP3,300,000.00 (Sec 86, NIRC).The Tax from
m
heinherited fromhis claim against the cousin amountingto P100, 000, although included in thegross estat
esta
father2,000,000Car which estate, cannot be claimed as adeduction because the debtor is not e
te
isbeing used byhis brother yetdeclared insolvent. Likewise, the inherited property cannot give rise to
inCavite 500,000Proceeds avanishing deduction for want ofsufficient factual basis (Sec 86, NIRC).UP LAW
of lifeinsurance wherehe COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
 acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.b.
What is the net taxable
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but The filing of the return and payment ofthe tax is within 6 months from date Proc
head of thefamily, Filipino, ofdeath following the pay-as-you-fileconcept. The period to file return edu
and resident of Pasig isextendible for a maximum of 30 daysunder meritorious cases as Estat re
City,died intestate on maybedetermined by the Commissioner. Thepayment of the estate tax may e for
2 Estate
November 15, 2009. Heleft also beextended when the Commissioner findsthat the payment of the tax on Tax Esta 2010
8 Tax
the following properties the duedate would impose undue hardship onthe estate or any of the heirs. Retu te
and interests:House and The periodof extension to pay shall not exceed 5years if the estate is settled rn Tax
lot(family home) inPasig P through thecourts, or shall not exceed 2 years ifsettled extrajudicially. Settl
800,000Vacation houseand TheCommissioner may require the executor,or administrator, or the eme
lot inFlorida, USA beneficiary tofurnish a bond in an amount not morethan double the amount nt :
1,500,000Agricultural of estate taxdue (Sec 91, NIRC). UP LAW COMPLEX & PHILIPPINE Filin
landin Naic, Cavitewhich ASSOCIATIONOF LAW SCHOOLS g of
heinherited fromhis Ret
father2,000,000Car which urn
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
 statedprofessional fees. c.
When is the due date for
filing and payment of the
applicable tax return and
tax? Are these dates
extendible? If so, under
what conditions or
requirements? (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
the following properties
and interests:House and
If the renunciation is a generalrenunciation such that the share of theheir who Effe
lot(family home) inPasig P
waives his right to theinheritance goes to the other co-heirs inaccordance with ct of
800,000Vacation houseand
their respective interestin the inheritance, the law on accretionapplies and the ren
lot inFlorida, USA Com
property waived isconsidered to pass through the other coheirs by unci
1,500,000Agricultural posi
inheritance; hence, it has no taximplication. Undoubtedly, when atio
landin Naic, Cavitewhich tion
thecompulsory heir renounced his share inthe inheritance, he did not donate n/w
2 heinherited fromhis Estate of
theproperty which did not become his. Suchbeing the case, the renunciation is aive 2010
9 father2,000,000Car which Tax Gros
notsubject to the donor’s tax. If it is not ageneral renunciation in favor of r of
isbeing used byhis brother s
theother co-heirs, the heir renouncing hisright is considered to have made inhe
inCavite 500,000Proceeds Estat
adonation and the renunciation is subjectto donor’s tax. In both cases, rita
of lifeinsurance wherehe e
however,the renunciation has no tax implicationto the other co-heirs (BIR nce
named hisestate
Ruling No. DA(DT-039) 396-09, dated July 23, 2009).UP LAW COMPLEX & by
asirrevocablebeneficiary
PHILIPPINE ASSOCIATIONOF LAW SCHOOLS heir
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
 adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.d. If
X, one of the compulsory
heirs, renounces his share
in the inheritance in favor
of the other co-heirs, is
there any tax implication of
X’s renunciation? What
about the other coheirs?
(2.5%)
Don Sebastian, single but Com Wit
head of thefamily, Filipino, All the properties and interestsenumerated in the problem should beincluded posi h
and resident of Pasig in the gross estate if thedecedent. The composition of a grossestate of a tion resp
3 City,died intestate on decedent who is a citizen ofthe Philippines includes all properties,tangible or Estate of ect
2010
0 November 15, 2009. Heleft intangible, wherever situatedand to the extent of the interest that hehas Tax Gros to
the following properties thereon at the time of his death (Sec85, NIRC). UP LAW COMPLEX & s resi
and interests:House and PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Estat den
lot(family home) inPasig P e t
800,000Vacation houseand citiz
lot inFlorida, USA en
1,500,000Agricultural
landin Naic, Cavitewhich
heinherited fromhis
father2,000,000Car which
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
 the above-
statedprofessional fees. a.
What are the properties
and interests that should be
included in the
computation of the gross
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
the following properties
and interests:House and
lot(family home) inPasig P The net taxable extent of the decedent isP3,700,000.00. From the gross estate Dete
800,000Vacation houseand ofP7 million the following deductions areallowed: (1) funeral expenses of rmin
lot inFlorida, USA P200,000 which is the maximum allowedby law; (2) legal fees amounting ation
Ded
1,500,000Agricultural toP500,000; (3) medical expenses not toexceed P500,000; (4) Claims against of
ucti
landin Naic, Cavitewhich theestate of P300,000; (5) family homeequivalent to its fair market value gros
ons
3 heinherited fromhis (notto exceed P1 million) of P800,000; and(6) standard deduction of P1 Estate s
fro 2010
1 father2,000,000Car which million, or atotal allowable deduction ofP3,300,000.00 (Sec 86, NIRC).The Tax estat
m
isbeing used byhis brother claim against the cousin amountingto P100, 000, although included in thegross e
Esta
inCavite 500,000Proceeds estate, cannot be claimed as adeduction because the debtor is not and
te
of lifeinsurance wherehe yetdeclared insolvent. Likewise, the inherited property cannot give rise to net
named hisestate avanishing deduction for want ofsufficient factual basis (Sec 86, NIRC).UP LAW estat
asirrevocablebeneficiary COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS e
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
 adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.b.
What is the net taxable
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but Proc
The filing of the return and payment ofthe tax is within 6 months from date
head of thefamily, Filipino, edu
ofdeath following the pay-as-you-fileconcept. The period to file return
and resident of Pasig re
isextendible for a maximum of 30 daysunder meritorious cases as
City,died intestate on for
maybedetermined by the Commissioner. Thepayment of the estate tax may
November 15, 2009. Heleft Estat Esta
also beextended when the Commissioner findsthat the payment of the tax on
the following properties e te
3 the duedate would impose undue hardship onthe estate or any of the heirs. Estate
and interests:House and Tax Tax 2010
2 The periodof extension to pay shall not exceed 5years if the estate is settled Tax
lot(family home) inPasig P Retu Settl
through thecourts, or shall not exceed 2 years ifsettled extrajudicially.
800,000Vacation houseand rn eme
TheCommissioner may require the executor,or administrator, or the
lot inFlorida, USA nt :
beneficiary tofurnish a bond in an amount not morethan double the amount
1,500,000Agricultural Filin
of estate taxdue (Sec 91, NIRC). UP LAW COMPLEX & PHILIPPINE
landin Naic, Cavitewhich g of
ASSOCIATIONOF LAW SCHOOLS
heinherited fromhis Ret
father2,000,000Car which urn
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees. c.
When is the due date for
filing and payment of the
applicable tax return and
 tax? Are these dates
extendible? If so, under
what conditions or
requirements? (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
the following properties
and interests:House and
lot(family home) inPasig P
800,000Vacation houseand
If the renunciation is a generalrenunciation such that the share of theheir who Effe
lot inFlorida, USA
waives his right to theinheritance goes to the other co-heirs inaccordance with ct of
1,500,000Agricultural
their respective interestin the inheritance, the law on accretionapplies and the ren
landin Naic, Cavitewhich Com
property waived isconsidered to pass through the other coheirs by unci
heinherited fromhis posi
inheritance; hence, it has no taximplication. Undoubtedly, when atio
father2,000,000Car which tion
thecompulsory heir renounced his share inthe inheritance, he did not donate n/w
3 isbeing used byhis brother Estate of
theproperty which did not become his. Suchbeing the case, the renunciation is aive 2010
3 inCavite 500,000Proceeds Tax Gros
notsubject to the donor’s tax. If it is not ageneral renunciation in favor of r of
of lifeinsurance wherehe s
theother co-heirs, the heir renouncing hisright is considered to have made inhe
named hisestate Estat
adonation and the renunciation is subjectto donor’s tax. In both cases, rita
asirrevocablebeneficiary e
however,the renunciation has no tax implicationto the other co-heirs (BIR nce
1,000,000Householdfurnitu
Ruling No. DA(DT-039) 396-09, dated July 23, 2009).UP LAW COMPLEX & by
re andappliances
PHILIPPINE ASSOCIATIONOF LAW SCHOOLS heir
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
 follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.d. If
X, one of the compulsory
heirs, renounces his share
in the inheritance in favor
of the other co-heirs, is
there any tax implication of
X’s renunciation? What
about the other coheirs?
(2.5%)
Don Sebastian, single but
head of thefamily, Filipino, Wit
and resident of Pasig Com h
City,died intestate on All the properties and interestsenumerated in the problem should beincluded posi resp
November 15, 2009. Heleft in the gross estate if thedecedent. The composition of a grossestate of a tion ect
3 the following properties decedent who is a citizen ofthe Philippines includes all properties,tangible or Estate of to
2010
4 and interests:House and intangible, wherever situatedand to the extent of the interest that hehas Tax Gros resi
lot(family home) inPasig P thereon at the time of his death (Sec85, NIRC). UP LAW COMPLEX & s den
800,000Vacation houseand PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Estat t
lot inFlorida, USA e citiz
1,500,000Agricultural en
landin Naic, Cavitewhich
heinherited fromhis
father2,000,000Car which
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees. a.
What are the properties
and interests that should be
 included in the
computation of the gross
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
and resident of Pasig
City,died intestate on
November 15, 2009. Heleft
the following properties
and interests:House and
lot(family home) inPasig P
800,000Vacation houseand
lot inFlorida, USA The net taxable extent of the decedent isP3,700,000.00. From the gross estate Dete
1,500,000Agricultural ofP7 million the following deductions areallowed: (1) funeral expenses of rmin
landin Naic, Cavitewhich P200,000 which is the maximum allowedby law; (2) legal fees amounting ation
Ded
heinherited fromhis toP500,000; (3) medical expenses not toexceed P500,000; (4) Claims against of
ucti
father2,000,000Car which theestate of P300,000; (5) family homeequivalent to its fair market value gros
ons
3 isbeing used byhis brother (notto exceed P1 million) of P800,000; and(6) standard deduction of P1 Estate s
fro 2010
5 inCavite 500,000Proceeds million, or atotal allowable deduction ofP3,300,000.00 (Sec 86, NIRC).The Tax estat
m
of lifeinsurance wherehe claim against the cousin amountingto P100, 000, although included in thegross e
Esta
named hisestate estate, cannot be claimed as adeduction because the debtor is not and
te
asirrevocablebeneficiary yetdeclared insolvent. Likewise, the inherited property cannot give rise to net
1,000,000Householdfurnitu avanishing deduction for want ofsufficient factual basis (Sec 86, NIRC).UP LAW estat
re andappliances COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS e
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
 follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.b.
What is the net taxable
estate of the decedent?
Explain. (2.5%)
Don Sebastian, single but
head of thefamily, Filipino,
Proc
and resident of Pasig
The filing of the return and payment ofthe tax is within 6 months from date edu
City,died intestate on
ofdeath following the pay-as-you-fileconcept. The period to file return re
November 15, 2009. Heleft
isextendible for a maximum of 30 daysunder meritorious cases as for
the following properties
maybedetermined by the Commissioner. Thepayment of the estate tax may Esta
and interests:House and Estat
also beextended when the Commissioner findsthat the payment of the tax on te
lot(family home) inPasig P e
3 the duedate would impose undue hardship onthe estate or any of the heirs. Estate Tax
800,000Vacation houseand Tax 2010
6 The periodof extension to pay shall not exceed 5years if the estate is settled Tax Settl
lot inFlorida, USA Retu
through thecourts, or shall not exceed 2 years ifsettled extrajudicially. eme
1,500,000Agricultural rn
TheCommissioner may require the executor,or administrator, or the nt :
landin Naic, Cavitewhich
beneficiary tofurnish a bond in an amount not morethan double the amount Filin
heinherited fromhis
of estate taxdue (Sec 91, NIRC). UP LAW COMPLEX & PHILIPPINE g of
father2,000,000Car which
ASSOCIATIONOF LAW SCHOOLS Ret
isbeing used byhis brother
urn
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees. c.
When is the due date for
filing and payment of the
applicable tax return and
tax? Are these dates
extendible? If so, under
what conditions or
requirements? (2.5%)
3 Don Sebastian, single but If the renunciation is a generalrenunciation such that the share of theheir who Estate Com Effe 2010
7 head of thefamily, Filipino, waives his right to theinheritance goes to the other co-heirs inaccordance with Tax posi ct of
and resident of Pasig their respective interestin the inheritance, the law on accretionapplies and the tion ren
City,died intestate on property waived isconsidered to pass through the other coheirs by of unci
November 15, 2009. Heleft inheritance; hence, it has no taximplication. Undoubtedly, when Gros atio
the following properties thecompulsory heir renounced his share inthe inheritance, he did not donate s n/w
and interests:House and theproperty which did not become his. Suchbeing the case, the renunciation is Estat aive
lot(family home) inPasig P notsubject to the donor’s tax. If it is not ageneral renunciation in favor of e r of
800,000Vacation houseand theother co-heirs, the heir renouncing hisright is considered to have made inhe
lot inFlorida, USA adonation and the renunciation is subjectto donor’s tax. In both cases, rita
1,500,000Agricultural however,the renunciation has no tax implicationto the other co-heirs (BIR nce
landin Naic, Cavitewhich Ruling No. DA(DT-039) 396-09, dated July 23, 2009).UP LAW COMPLEX & by
heinherited fromhis PHILIPPINE ASSOCIATIONOF LAW SCHOOLS heir
father2,000,000Car which
isbeing used byhis brother
inCavite 500,000Proceeds
of lifeinsurance wherehe
named hisestate
asirrevocablebeneficiary
1,000,000Householdfurnitu
re andappliances
1,000,000Claims against
acousin who hasassets
ofP10,000 andliabilities
ofP100,000 100,000Shares
of stockin ABC Corp,
adomestic
100,000enterpriseThe
expenses and chargeson
the estate are as
follows:FuneralExpenses P
250,000Legal fees for
thesettlement of theestate
500,000Medicalexpenses of
 lastillness 600,000Claims
againstthe estate
300,000The compulsory
heirs of Don
Sebastianapproach you and
seek your assistance inthe
settlement of his estate for
which theyhave agreed to
the above-
statedprofessional fees.d. If
X, one of the compulsory
heirs, renounces his share
in the inheritance in favor
of the other co-heirs, is
there any tax implication of
X’s renunciation? What
about the other coheirs?
(2.5%)
In civil cases involving the
Taxp
collection of internal
ayer'
revenue taxes, prescription TAX Coll
3 TRUE. UP LAW COMPLEX & PHILIPPINE ASSOCIATION s
is construed strictly against REMEDI ecti 2010
8 OF LAW SCHOOLS rem
the government and ES on
edie
liberally in favor of the
s
taxpayer. True or False (1%)
In criminal cases involving
tax offenses punishable Taxp
under the National Internal ayer'
TAX Coll
3 Revenue Code (NIRC), FALSE. UP LAW COMPLEX & PHILIPPINE ASSOCIATION s
REMEDI ecti 2010
9 prescription is construed OF LAW SCHOOLS rem
ES on
strictly against the edie
government. True or False s
(1%)
4 In criminal cases where the FALSE. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS Judicial Judic Judi 2010
 Court of Tax Appeals (CTA)
has exclusive original
ial cial
jurisdiction, the right to file
Remedi proc proc
0 a separate civil action for
es edur edu
the recovery of taxes may
es res
be reserved. True or False
(1%)
Proceedings before the Juris Juris
CTA in the exercise of its dicti dicti
Judicial
4 exclusive original TRUE. UP LAW COMPLEX & PHILIPPINE ASSOCIATION on on
Remedi 2010
1 jurisdiction are in the OF LAW SCHOOLS of of
es
nature of trial de novo. True the the
or False (1%) CTA CTA
Judgments, resolutions or
orders of the Regional Trial
Court in the exercise of Juris Juris
its original  jurisdiction dicti dicti
Judicial
4 involving criminal offenses FALSE. UP LAW COMPLEX & PHILIPPINE ASSOCIATION on on
Remedi 2010
2 arising from violations of OF LAW SCHOOLS of of
es
the NIRC are appealable to the the
the CTA, which shall hear CTA CTA
the cases en banc. True or
False (1%)
 The waiver of the statute of limitation
executed by a taxpayer is not a waiver of
the right to invoke the defense of
prescription. The waiver of the statute of
limitation is merely an agreement in
What is the effect of the writing between the taxpayer and the Judic Judi
execution by a taxpayer of a BIR that the period to assess and collect Judicial ial cial
4
"waiver of the statute of taxes due is extended to a date certain. Remedi proc proc 2010
3
limitations" on his defense If prescription has already set in at the es edur edu
of prescription? (2%) time of execution of the waiver or if the es res
said waiver is invalid, the taxpayer can
still raise prescription as defense (Phil.
Journalists Inc., v. CIR, G.R. No.
162852, Dec. 16, 2004) UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS

4 On March 10, 2010, No. The issuance of preliminaryassessment notice (PAN) does not giverise to TAX Taxp Asse 2010
4 Continental, Inc. received a the right of the taxpayer toprotest. What can be protested by thetaxpayer is REMEDI ayer' ssm
preliminary assessment the final assessment notice(FAN) or that assessment issuedfollowing the PAN. ES s ent
notice (PAN) dated March Since the FAN wastimely protested (within 30 days fromreceipt thereof, the rem
1, 2010 issued by the assessment did notbecome final and executory (Sec 228,NIRC; RR No. 12-99). edie
Commissioner of Internal UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS s
Revenue (CIR) for deficiency
income tax for its taxable
year 2008. It failed to
protest the PAN. The CIR
thereupon issued a final
assessment notice (FAN)
with letter of demand on
April 30, 2010. The FAN was
received by the corporation
on May 10, 2010, following
which or on May 25, 2010,
it filed its protest against
it.The CIR denied the
protest on the ground that
the assessment had already
become final and
executory, the corporation
having failed to protest the
PAN.Is the CIR correct?
Explain. (5%)
 No, for either of two reasons (1) ininstances in which the Commissioner
ofInternal Revenue is vested withauthority to compromise, such
authorityshould be exercised in accordance withthe Commissioner’s
discretion, andcourts have no power, as a general rule,to compel him to
exercise suchdiscretion one way or another (KoppelPhils., Inc. v. CIR, 87 Phil,
Does the Court of Appeals
351 (1950);(2) If the Commissioner abuses hisdiscretion by not following
have the power to review Judic Judi
theparameters set by law, the CTA, not theCourt of Appeals, may correct
compromise agreements Judicial ial cial
4 suchabuse if the matter is appealed to it. Incase of arbitrary or capricious
forged by the Remedi proc proc 2010
5 exerciseby the Commissioner of the power tocompromise, the compromise
Commissioner of Internal es edur edu
can beattacked and reversed through thejudicial process. It must be
Revenue and a taxpayer? es res
notedhowever, that a compromise isconsidered as other matters arisingunder
Explain. (5%)
the NIRC which vests the CTAwith jurisdiction, and since the decisionof the
CTA is appealable to the SupremeCourt, the Court of Appeals is devoid ofany
power of review a compromisesettlement forged by the Commissioner(PNOC
v. Savellano, G.R. No. 109976,April 26, 2005; RA 9282 on jurisdictionof CTA).
UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS

Based on the Affidavit of No. In the case of failure to file a return,a proceeding in court for the Judic Judi
Judicial
4 the Commissioner of collectionof the tax may be filed without anassessment (Sec 222 (a), NIRC). ial cial
Remedi 2010
6 Internal Revenue (CIR), an The taxcan be collected by filing a criminalaction with the RTC because a proc proc
es
Information for failure to criminalaction is a mode of collecting the taxliability. (Sec. 205, NIRC). Besides, edur edu
file income tax return under
Section 255 of the National
Internal Revenue Code
(NIRC) was filed by the
Department of Justice (DOJ)
with the Manila Regional
Trial Court (RTC) against XX,
a Manila resident. XX theCommissioner is empowered to prepare areturn on the basis if his own
moved to quash the knowledge,and upon such information as he canobtain from testimony or
Information on the ground otherwise,which shall be prima facie correct andsufficient for legal purposes
es res
that the RTC has no (Sec 6 (B),NIRC; the issuance of a formal deficiencytax assessment, therefore,
jurisdiction in view of the is notrequired. UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW
absence of a formal SCHOOLS
deficiency tax assessment
issued by the CIR. Is a prior
assessment necessary
before an Information for
violation of Section 255 of
the NIRC could be filed in
court? Explain. (4%)
 What are the conditions The CTA may suspend the collection ofinternal revenue taxes if the
Taxp
that must be complied with followingconditions are met:1. the case is pending appealwith the CTA;2. in
ayer'
before the Court of Tax the opinion of the Court thecollection will jeopardize theinterest of the TAX Coll
4 s
Appeals may suspend the Governmentand/or the taxpayer; and3. the taxpayer is willing todeposit in REMEDI ecti 2010
7 rem
collection of national Court the amountbeing collected or to file asurety bond for not more ES on
edie
internal revenue taxes? thandouble the amount of the tax(Sec 11, RA 1125, as amendedby RA 9282).
s
(3%) UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS

What is the rule on appeal
from decisions of the
Collector of Customs in
4 protest and seizure cases?
8 When is the decision of the
Collector of Customs
appealable to the Court of
Tax Appeals? Explain. (5%)
Decisions of the Collector of Customs inprotest and seizure cases are
appealableto the Commissioner of Customs within15 days from receipt of
notice of thewritten decision.As a rule, decisions of the Collector ofCustoms
are not appealable to the Court of Tax Appeals. If the Collector ofCustoms, Tariff Gov
Rem
however, does not decide aprotest for a long period of time, theinaction may and ern
edie 2010
be considered as anadverse decision by the Collector ofCustoms and the Custom men
s
aggrieved taxpayer mayappeal to the CTA even without theCollector’s and s t
Commissioner’s actualdecision (Commissioner of Customs v.Planters Products,
Inc. G.R. No. 82018,March 16, 1989).UP LAW COMPLEX & PHILIPPINE
ASSOCIATIONOF LAW SCHOOLS

Amaretto, Inc., imported

100 cases of Marula wine
from South Africa. The Begi
shipment was assessed nnin
Requ
duties and value-added g
irem
taxes of P300,000 which (D) No, because the Bureau of Customs has not yet issued the legal permit for Tariff and
ents
Amaretto, Inc. immediately withdrawal pending the FDA's findings. (UP LAW COMPLEX & PHILIPPINE and endi
1 of 2011
paid. The Bureau of ASSOCIATION Custom ng
impo
Customs did not, however, OF LAW SCHOOLS) s of
rtati
issue the release papers of imp
on
the shipment yet since the orta
Food and Drug tion
Administration (FDA)
needed to test the
 suitability of the wine for
human consumption. Is the
Bureau of Customs at fault
for refusing to release the
shipment just as yet?
(A) Yes, because the
importation was already
terminated as a result of
the payment of the taxes
due.

(B) Yes, the Bureau of

Customs is estopped from
holding the release of the
shipment after receiving
the payment.
(C) No, if the amount paid
as duties and value-added
taxes due on the
importation was
insufficient.
(D) No, because the Bureau
of Customs has not yet
issued the legal permit for
withdrawal pending the
FDA's findings.
2 A violation of the tariff and (B) pay the customs duties and taxes or to comply with the rules on customs Tariff Requ Obli 2011
customs laws is the failure procedures. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW and irem gati
to (A) pay the customs SCHOOLS) Custom ents ons
duties and taxes and to s of of
comply with the rules on impo imp
customs procedures.(B) pay rtati orte
the customs duties and on r
taxes or to comply with the
 rules on customs
procedures.(C) pay the
customs duties and taxes.
(D) comply with the rules
on customs procedures.
Is an article previously
exported from the
Philippines subject to the
payment of customs
duties?
Gen
(A) Yes, because all articles
eral Imp
that are imported from any
rule: orta
foreign country are subject
all tion
to duty.
impo by
(B) No, because there is no Tariff
(D) No, if it is covered by a certificate of identification and has not been rted the
basis for imposing duties on and
3 improved in value. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW articl gov 2011
articles previously exported Custom
SCHOOLS) es ern
from the Philippines. s
are men
(C) Yes, because
subj t
exemptions are strictly
ect taxa
construed against the
to ble
importer who is the
duty
taxpayer.
(D) No, if it is covered by a
certificate of identification
and has not been improved
in value.
4 Under the Tariff and (A) government whatever be the circumstances. (UP LAW COMPLEX & Tariff Class taxa 2011
Customs Code, abandoned PHILIPPINE ASSOCIATION OF LAW SCHOOLS) and ifica ble
imported articles becomes Custom tion imp
the property of the s of orta
(A) government whatever good tion
be the circumstances. s
(B) insurance company that
 covered the shipment.
(C) shipping company in
case the freight was not
paid.
(D) bank if the shipment is
covered by a letter of
credit.
Discriminatory duties may
NOT be imposed upon
articles
(A) wholly manufactured in
the discriminating country
but carried by vessels of
another country.
Class
(B) not manufactured in the
Tariff ifica Spe
discriminating country but (D) not manufactured in the discriminating country and carried by vessels of
and tion cial
5 carried by vessels of such another country. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION 2011
Custom of duti
country. OF LAW SCHOOLS)
s duti es
(C) partly manufactured in
es
the discriminating country
but carried by vessels of
another country.
(D) not manufactured in the
discriminating country and
carried by vessels of
another country.
6 A municipality may levy an (A) the real property is within the Metropolitan Manila Area. (UP LAW Real Impo Pow 2011
annual ad valorem tax on COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Propert sitio er
real property such as land, y n of to
building, machinery, and Taxatio Real levy
other improvement only n Prop real
if(A) the real property is erty pro
within the Metropolitan Tax pert
Manila Area.(B) the real y
 property is located in the
municipality.(C) the DILG
authorizes it to do so. (D) tax
the power is delegated to it
by the province.
After the province has
constructed a barangay
road, the Sangguniang
Panglalawigan may impose
a special levy upon the
lands specifically benefitted
by the road up to an
amount not to exceed Pow
(A) 60% of the actual cost of Impo er
the road without giving any Local sitio to
portion to the barangay. Govern n of levy
(A) 60% of the actual cost of the road without giving any portion to the
7 (B) 100% of the actual ment Real real 2011
barangay. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
project cost without giving Taxatio Prop pro
any portion to the n erty pert
barangay. Tax y
(C) 100% of the actual tax
project cost, keeping 60%
for the province and giving
40% to the barangay.
(D) 60% of the actual cost,
dividing the same between
the province and the
barangay.
What is the tax base for the Spec
Local
imposition by the province ific Prof
(C) The reasonable classification made by the provincial sanggunian. (UP LAW Govern
of professional taxes? taxin essi
8 COMPLEX & PHILIPPINE ASSOCIATION ment 2011
(A) That which Congress g onal
OF LAW SCHOOLS) Taxatio
determined. pow tax
n
(B) The pertinent provision er of
 of the local Government
Local
Code.
Gov
(C) The reasonable
ern
classification made by the
men
provincial sanggunian.
t
(D) That which the Dept. of
Unit
Interior and Local
s
Government determined.
9 Prior to the enactment of (D) Yes, their exemption is specifically mentioned among those not withdrawn Local Natu with 2011
the Local Government by the Local Government Code. (UP LAW COMPLEX & PHILIPPINE Govern re dra
Code, consumer's ASSOCIATION OF LAW SCHOOLS) ment and wal
cooperatives registered Taxatio Sour fro
under the Cooperative n ce of m
Development Act enjoyed Taxi exe
exemption from all taxes ng mp
imposed by a local Pow tion
government. With the Local er s
Government Code‟s
withdrawal of exemptions,
could these cooperatives
continue to enjoy such
exemption?
(A) Yes, because the Local
Government Code, a
general law, could not
amend a special law such as
the Cooperative
Development Act.
(B) No, Congress has not by
the majority vote of all its
members granted
exemption to consumers'
cooperatives. (C) No,
the exemption has been
 withdrawn to level the
playing field for all
taxpayers and preserve the
LGUs' financial position.
(D) Yes, their exemption is
specifically mentioned
among those not
withdrawn by the Local
Government Code.
No
app
Money collected from ropr
taxation shall not be paid to iatio
any religious dignitary n or
EXCEPT when use
(A) the religious dignitary is General Doct of
assigned to the Philippine (A) the religious dignitary is assigned to the Philippine Army. (UP LAW Principl rines publ
1
Army. COMPLEX & PHILIPPINE ASSOCIATION es of in ic 2011
0
(B) it is paid by a local OF LAW SCHOOLS) Taxatio Taxa mon
government unit. n tion ey
(C) the payment is passed in for
audit by the COA. relig
(D) it is part of a ious
lawmaker‟s pork barrel. pur
pos
es
1 Real property owned by the (B) leases the real property to a business establishment. (UP LAW COMPLEX & Real Impo exe 2011
1 national government is PHILIPPINE ASSOCIATION Propert sitio mp
exempt from real property OF LAW SCHOOLS) y n of tion
taxation unless the national Taxatio Real fro
government n Prop m
(A) transfers it for the use erty real
of a local government unit. Tax pro
(B) leases the real property pert
 to a business
establishment.
(C) gratuitously allows its
use for educational
y
purposes by a school
tax
established for profit.
(D) sells the property to a
government-owned non-
profit corporation.
1 Ka Tato owns a parcel of (B) No. The deficiency taxes for the period 1990 up to 2011 may still be Real Colle peri 2011
2 land in San Jose, Batangas collected within 10 years from March 2011. (UP LAW COMPLEX & PHILIPPINE Propert ction od
declared for real property ASSOCIATION OF LAW SCHOOLS) y of with
taxation, as agricultural. In Taxatio real in
1990, he used the land for a n prop whi
poultry feed processing erty ch
plant but continued to tax to
declare the property as coll
agricultural. In March 2011, ect
the local tax assessor real
discovered Ka Tato‟s pro
change of use of his land pert
and informed the local y
treasurer who demanded tax
payment of deficiency real
property taxes from 1990
to 2011. Has the action
prescribed? (A) No, the
deficiency taxes may be
collected within five years
from when they fell due. (B)
No. The deficiency taxes for
the period 1990 up to 2011
may still be collected within
10 years from March 2011.
 (C) Yes. More than 10 years
had lapsed for the period
1990 up to 2000, hence the
right to collect the
deficiency taxes has
prescribed. (D) Yes. More
than 5 years had lapsed for
the collection of the
deficiency taxes for the
period 1990 up to 2005.
1 Lualhati Educational (D) Yes, since the leased portion is not actually, directly, and exclusively used Real Impo exe 2011
3 Foundation, Inc., a stock for educational purposes. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Propert sitio mp
educational institution OF LAW SCHOOLS) y n of tion
organized for profit, Taxatio Real fro
decided to lease for n Prop m
commercial use a 1,500 sq. erty real
m. portion of its school. The Tax pro
school actually, directly, pert
and exclusively used the y
rents for the maintenance tax
of its school buildings,
including payment of
janitorial services. Is the
leased portion subject to
real property tax?
(A) Yes, since Lualhati is a
stock and for profit
educational institution.
(B) No, since the school
actually, directly, and
exclusively used the rents
for educational purposes.
(C) No, but it may be
subject to income taxation
 on the rents it receives.
(D) Yes, since the leased
portion is not actually,
directly, and exclusively
used for educational
purposes.
Apparently the law does
not provide for the refund
of real property taxes that
have been collected as a
result of an erroneous or
illegal assessment by the
provincial or city assessor.
What should be done in
such instance to avoid an
Rep
injustice?(A) Question the
Refu aym
legality of the no-refund
nd ent
rule before the Supreme Real
or of
Court.(B) Enact a new (C)Subsequent adjustment in tax computation and the application of the Propert
1 credi exce
ordinance amending the excess payment to future real property tax liabilities. (UP LAW COMPLEX & y 2011
4 t of ssiv
erroneous or illegal PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio
real e
assessment to correct the n
prop coll
error. (C) Subsequent
erty ecti
adjustment in tax
ons
computation and the
application of the excess
payment to future real
property tax liabilities.(D)
Pass a new ordinance
providing for the refund of
real property taxes that
have been erroneously or
illegally collected
1 The head priest of the (D) exempt from real property taxes since it is actually, directly, and Real Impo exe 2011
 religious sect Tres Personas
Solo Dios, as the
corporation sole, rented
out a 5,000 sq. m. lot
registered in its name for
use as school site of a
school organized for profit.
The sect used the rentals
for the support and upkeep
of its priests. The rented lot
is mp
(A) not exempt from real tion
sitio
property taxes because the fro
Propert n of
user is organized for profit. m
exclusively used for educational purposes. (UP LAW COMPLEX & PHILIPPINE y Real
5 real
ASSOCIATION OF LAW SCHOOLS) Taxatio Prop
(B) exempt from real pro
n erty
property taxes since it is pert
Tax
actually, directly, and y
exclusively used for tax
religious purposes.
(C) not exempt from real
property taxes since it is the
rents, not the land, that is
used for religious purposes.
(D) exempt from real
property taxes since it is
actually, directly, and
exclusively used for
educational purposes.
Guidant Resources Taxa Wit
Corporation, a corporation (A) Gains from the sale to an Ilocos Norte power plant of generators bought Income tion h
1
registered in Norway, has a from the United States. (UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF Taxatio of resp 2011
6
50 MW electric power plant LAW SCHOOLS) n resid ect
in San Jose, Batangas. Aside ent to
 from Guidant's income
from its power plant, which
among the following is
considered as part of its
income from sources within
the Philippines?(A) Gains thei
from the sale to an Ilocos r
Norte power plant of inco
generators bought from the me
United States.(B) Interests fro
forei
earned on its dollar m
gn
deposits in a Philippine sour
corp
bank under the Expanded ces
orati
Foreign Currency Deposit with
ons
System.(C) Dividends from in
a two-year old Norwegian the
subsidiary with operations Phili
in Zambia but derives 60% ppin
of its gross income from the es
Philippines.(D) Royalties
from the use in Brazil of
generator sets designed in
the Philippines by its
engineers.
1 There is no taxable income (C) income has been received, either actually or constructively. (UP LAW Income Inco Wh 2011
7 until such income is COMPLEX & PHILIPPINE ASSOCIATION Taxatio me en
recognized. Taxable income OF LAW SCHOOLS) n inco
is recognized when the me
(A) taxpayer fails to include is
the income in his income taxa
tax return. ble
(B) income has been
actually received in money
or its equivalent.
 (C) income has been
received, either actually or
constructively.
(D) transaction that is the
source of the income is
consummated.
1 Keyrand, Inc., a Philippine (D) It shall pay a tax of one-half of 1% of the P2 million gross sales. (UP LAW Income Taxa Tax 2011
8 corporation, sold through COMPLEX & PHILIPPINE ASSOCIATION Taxatio tion atio
the local stock exchange OF LAW SCHOOLS) n of n of
10,000 PLDT shares that it dom capi
bought 2 years ago. estic tal
Keyrand sold the shares for corp gain
P2 million and realized a orati s
net gain of P200,000.00. ons
How shall it pay tax on the
transaction?
(A) It shall declare a P2
million gross income in its
income tax return,
deducting its cost of
acquisition as an expense.

(B) It shall report the

P200,000.00 in its
corporate income tax
return adjusted by the
holding period.
(C) It shall pay 5% tax on
the first P100,000.00 of the
P200,000.00 and 10% tax
on the remaining
P100,000.00.
(D) It shall pay a tax of one-
half of 1% of the P2 million
 gross sales.
Passive income includes
income derived from an
activity in which the earner
Tax
does not have any
atio
substantial participation.
Income Inco n of
1 This type of income is(A) (A) usually suubject to a final tax. (UP LAW COMPLEX & PHILIPPINE
Taxatio me pass 2011
9 usually subject to a final ASSOCIATIONOF LAW SCHOOLS)
n Tax ive
tax.(B) exempt from income
inco
taxation.(C) taxable only if
me
earned by a citizen.(D)
included in the income tax
return.
2 Federico, a Filipino citizen, (C) the gains derived from the sale in the New York Stock Exchange of shares Income Gros Situ 2011
0 migrated to the United of stock in PLDT, a Philippine corporation. (UP LAW COMPLEX & PHILIPPINE Taxatio s s of
States some six years ago ASSOCIATION n Inco Tax
and got a permanent OF LAW SCHOOLS) me atio
resident status or green n
card. He should pay his
Philippine income taxes on
(A) the gains derived from
the sale in California, U.S.A.
of jewelry he purchased in
the Philippines.
(B) the proceeds he
received from a Philippine
insurance company as the
sole beneficiary of life
insurance taken by his
father who died recently.
(C) the gains derived from
the sale in the New York
Stock Exchange of shares of
stock in PLDT, a Philippine
 corporation.
(D) dividends received from
a two year old foreign
corporation whose gross
income was derived solely
from Philippine sources.
A corporation may change
its taxable year to calendar
or fiscal year in filing its
annual income tax return,
provided
(A) it seeks prior BIR Cale
approval of its proposed nda
change in accounting Taxa r
Income
2 period. (A) it seeks prior BIR approval of its proposed change in accounting period. (UP ble Year
Taxatio 2011
1 (B) it simultaneously seeks LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Peri /
n
BIR approval of its new od Fisc
accounting period. al
(C) it should change its Year
accounting period two
years prior to changing its
taxable year.
(D) its constitution and by-
laws authorizes the change.
What is the rule on the
taxability of income that a
Exe
government educational
nmp
institution derives from its Gros
(B) Exempt from income taxation if it is actually, directly, and exclusively used Income t
2 school operations? Such s
for educational purposes. (UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF Taxatio Cor 2011
2 income is(A) subject to 10% Inco
LAW SCHOOLS) n por
tax on its net taxable me
atio
income as if it is a
ns
proprietary educational
institution. (B) Exempt from
 income taxation if it is
actually, directly, and
exclusively used for
educational purposes.(C)
subject to the ordinary
income tax rates with
respect to incomes derived
from educational activities.
(D) Exempt from income
taxation in the same
manner as government-
owned and controlled
corporations.
2 Alain Descartes, a French (A) Consultancy fees received for designing a computer program and installing Income Gros Situ 2011
3 citizen permanently the same in the Shanghai facility of a Chinese firm. (UP LAW COMPLEX & Taxatio s s of
residing in the Philippines, PHILIPPINE ASSOCIATION n Inco Tax
received several items OF LAW SCHOOLS) me atio
during the taxable year. n
Which among the following
is NOT subject to Philippine
income taxation?
(A) Consultancy fees
received for designing a
computer program and
installing the same in the
Shanghai facility of a
Chinese firm.
(B) Interests from his
deposits in a local bank of
foreign currency earned
abroad converted to
Philippine pesos.
(C) Dividends received from
an American corporation
 which derived 60% of its
annual gross receipts from
Philippine sources for the
past 7 years.
(D) Gains derived from the
sale of his condominium
unit located in The Fort,
Taguig City to another
resident alien.
Income is considered
realized for tax purposes
when
(A) it is recognized as
revenue under accounting
standards even if the law
Wh
does not do so.
en
(B) the taxpayer retires
(D) the earning process is complete or virtually complete and an exchange has Income inco
2 from the business without Inco
taken place. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Taxatio me 2011
4 approval from the BIR. me
OF LAW SCHOOLS) n is
(C) the taxpayer has been
taxa
paid and has received in
ble
cash or near cash the
taxable income.
(D) the earning process is
complete or virtually
complete and an exchange
has taken place.
Which among the following Cale
taxpayers is required to use nda
Taxa
only the calendar year for (A) Partnership exclusively for the design of government infrastructure Income r
2 ble
tax purposes?(A) projects considered as practice of civil engineering. (UP LAW COMPLEX & Taxatio Year 2011
5 Peri
Partnership exclusively for PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n /Fis
od
the design of government cal
infrastructure projects Year
 considered as practice of
civil engineering. (B) Joint-
stock company formed for
the purpose of undertaking
construction projects. (C)
Business partnership
engaged in energy
operations under a service
contract with the
government.(D) Joint
account (cuentas en
participacion) engaged in
the trading of mineral ores.
Taxa
tion
Income from dealings in of
property (real, personal, or resid
mixed) is the gain or loss ent
derived citize Tax
(A) only from the cash sales ns, atio
of property. Income non- n of
2 (D) only from the sale of property. (UP LAW COMPLEX & PHILIPPINE
(B) from cash and Taxatio resid capi 2011
6 ASSOCIATION OF LAW SCHOOLS)
gratuitous receipts of n ent tal
property. citize gain
(C) from sale and lease of ns, s
property. and
(D) only from the sale of resid
property. ent
alien
s
In March 2009, Tonette, Taxa Ite
Income
2 who is fond of jewelries, (B) Tonette may carry over and deduct her 2009 loss only from her 2010 gain. tion miz
Taxatio 2011
7 bought a diamond ring for (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) of ed
n
P750,000.00, a bracelet for resid ded
P250,000.00, a necklace for ent ucti
P500,000.00, and a brooch citize ons
for P500,000.00. Tonette ns,
derives income from the non-
exercise of her profession resid
as a licensed CPA. In ent
October 2009, Tonette sold citize
her diamond ring, bracelet, ns,
and necklace for only P1.25 and
million incurring a loss of resid
P250,000.00. She used the ent
P1.25 million to buy a solo alien
diamond ring in November s
2009 which she sold for
P1.5 million in September
2010. Tonette had no other
transaction in jewelry in
2010. Which among the
following describes the tax
implications arising from
the above transactions?(A)
Tonette may deduct his
2009 loss only from her
2009 professional income.
(B) Tonette may carry over
and deduct her 2009 loss
only from her 2010 gain.(C)
Tonette may carry over and
deduct her 2009 loss from
her 2010 professional
income as well as from her
gain. (D) Tonette may not
deduct her 2009 loss from
both her 2010 professional
 income and her gain.
Dondon and Helena were
legally separated. They had
six minor children, all
qualified to be claimed as
additional exemptions for
income tax purposes. The
court awarded custody of
two of the children to
Dondon and three to
Helena, with Dondon
Ded
directed to provide full
ucti
financial support for them
ons
as well. The court awarded Gros
Income fro
2 the 6th child to Dondon's (D) Two children. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW s
Taxatio m 2011
8 father with Dondon also SCHOOLS) Inco
n Gro
providing full financial me
ss
support. Assuming that only
Inco
Dondon is gainfully
me
employed while Helena is
not, for how many children
could Dondon claim
additional exemptions
when he files his income
tax return?
(A) Six children.
(B) Five children.
(C) Three children.
(D) Two children.
Political campaign Ded
Gros
contributions are NOT Income ucti
2 (C) since they do not help earn the income from which they are to be s
deductible from gross Taxatio ons 2011
9 deducted. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Inco
income (A) if they are not n fro
me
reported to the m
 Commission on Elections.
(B) if the candidate
supported wins the election
because of possible
corruption.(C) since they do Gro
not help earn the income ss
from which they are to be Inco
deducted. (D) since such me
amounts are not
considered as income of
the candidate to whom
given.
The proceeds received
under a life insurance
endowment contract is NOT
considered part of gross
income
Excl
(A) if it is so stated in the
usio
life insurance endowment
ns
policy. Gros
(C) where payment is made as a result of the death of the insured. (UP LAW Income fro
3 (B) if the price for the s
COMPLEX & PHILIPPINE ASSOCIATION Taxatio m 2011
0 endowment policy was not Inco
OF LAW SCHOOLS) n Gro
fully paid. me
ss
(C) where payment is made
Inco
as a result of the death of
me
the insured.
(D) where the beneficiary
was not the one who took
out the endowment
contract.
The excess of allowable Gros Ded
Income
3 deductions over gross (A) net operating loss. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION s ucti
Taxatio 2011
1 income of the business in a OF LAW SCHOOLS) Inco ons
n
taxable year is known as me fro
 (A) net operating loss.
m
(B) ordinary loss. Gro
ss
(C) net deductible loss. Inco
me
(D) NOLCO.
3 Pierre de Savigny, a (B) a non-resident alien engaged in trade or business in the Philippines. (UP Income Inco Kind 2011
2 Frenchman, arrived in the LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio me s of
Philippines on January 1, n Tax Tax
2010 and continued to live pay
and engage in business in ers
the Philippines. He went on
a tour of Southeast Asia
from August 1 to November
5, 2010. He returned to the
Philippines on November 6,
2010 and stayed until April
15, 2011 when he returned
to France. He earned during
his stay in the Philippines a
gross income of P3 million
from his investments in the
country. For the year 2010,
Pierre‟s taxable status is
that of
(A) a non-resident alien not
engaged in trade or
business in the Philippines.
(B) a non-resident alien
engaged in trade or
business in the Philippines.
(C) a resident alien not
engaged in trade or
 business in the Philippines.
(D) a resident alien engaged
in trade or business in the
Philippines.
The payor of passive
income subject to final tax
is required to withhold the
tax from the payment due
the recipient. The
withholding of the tax has
the effect of (A) a final Wit
Income Inco
3 settlement of the tax (A) a final settlement of the tax liability on the income. (UP LAW COMPLEX & hhol
Taxatio me 2011
3 liability on the income.(B) a PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) ding
n Tax
credit from the recipient's tax
income tax liability.(C)
consummating the
transaction resulting in an
income.(D) a deduction in
the recipient's income tax
return.
3 Anktryd, Inc., bought a (B) Anktryd could deduct its P6 million loss from its P5 million gain. (UP LAW Income Gros Ded 2011
4 parcel of land in 2009 for P7 COMPLEX & PHILIPPINE ASSOCIATION Taxatio s ucti
million as part of its OF LAW SCHOOLS) n Inco ons
inventory of real properties. me fro
In 2010, it sold the land for m
P12 million which was its Gro
zonal valuation. In the same ss
year, it incurred a loss of P6 Inco
million for selling another me
parcel of land in its
inventory. These were the
only transactions it had in
its real estate business.
Which of the following is
 the applicable tax
treatment?
(A) Anktryd shall be subject
to a tax of 6% of P12
million.
(B) Anktryd could deduct its
P6 million loss from its P5
million gain.
(C) Anktryd's gain of P5
million shall be subject to
the holding period.
(D) Anktryd's P6 million loss
could not be deducted from
its P5 million gain.
3 Aplets Corporation is (C) No. Aplets is a non-resident foreign corporation not engaged in trade or Income Inco Kind 2011
5 registered under the laws business in the Philippines. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Taxatio me s of
of the Virgin Islands. It has OF LAW SCHOOLS) n Tax Tax
extensive operations in pay
Southeast Asia. In the ers
Philippines, Its products are
imported and sold at a
mark-up by its exclusive
distributor, Kim's Trading,
Inc. The BIR compiled a
record of all the imports of
Kim from Aplets and
imposed a tax on Aplets net
income derived from its
exports to Kim. Is the BIR
correct?
(A) Yes. Aplets is a non-
resident foreign
corporation engaged in
trade or business in the
 Philippines.
(B) No. The tax should have
been computed on the
basis of gross revenues and
not net income.
(C) No. Aplets is a non-
resident foreign
corporation not engaged in
trade or business in the
Philippines.
(D) Yes. Aplets is doing
business in the Philippines
through its exclusive
distributor Kim's Trading.
Inc.
3 In 2009, Spratz, Inc.‟s net (B) Yes, since the accumulation is not reasonably necessary for the immediate Income Inco Imp 2011
6 profit before tax was P35 needs of the business. (UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW Taxatio me ositi
million while its operating SCHOOLS) n Tax on
expenses was P31 million. of
In 2010, its net profit imp
before tax was P40 million rop
and its operating expenses erly
was P38 million. It did not accu
declare dividends for 2009 mul
and 2010. And it has no ated
proposed capital earn
expenditures for 2011 and ings
the immediate future. May tax
Spratz be subject to the
improperly accumulated tax
on its retained profits for
2009 and 2010?(A) Yes,
since the accumulated
amounts are reasonable for
 operations in relation to
what it usually needed
annually.(B) Yes, since the
accumulation is not
reasonably necessary for
the immediate needs of the
business.(C) No, because
there is no showing that the
taxpayer's 2009 and 2010
net profit before tax
exceeded its paid-up
capital.(D) No, because the
taxpayer is not shown to be
a publicly-listed
corporation, a bank, or an
insurance company.
3 Zygomite Minerals, Inc., a (B) gains it derived from sale in Australia of shares of stock of Philex Mining Income Gros Situ 2011
7 corporation registered and Corporation, a Philippine corporation. (UP LAW COMPLEX & PHILIPPINE Taxatio s s of
holding office in Australia, ASSOCIATION OF LAW SCHOOLS) n Inco Tax
not operating in the me atio
Philippines, may be subject n
to Philippine income
taxation on
(A) gains it derived from
sale in Australia of an ore
crusher it bought from the
Philippines with the
proceeds converted to
pesos.
(B) gains it derived from
sale in Australia of shares of
stock of Philex Mining
Corporation, a Philippine
corporation.
 (C) dividends earned from
investment in a foreign
corporation that derived
40% of its gross income
from Philippine sources.
(D) interests derived from
its dollar deposits in a
Philippine bank under the
Expanded Foreign Currency
Deposit System.
In 2010, Juliet Ulbod earned
P500,000.00 as income
from her beauty parlor and
received P250,000.00 as Sour
Christmas gift from her ces
spinster aunt. She had no of
Gros
other receipts for the year. Income inco
3 (B) P500,000.00. (UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW s
She spent P150,000.00 for Taxatio me 2011
8 SCHOOLS) Inco
the operation of her beauty n subj
me
parlor. For tax purposes, ect
her gross income for 2010 to
is (A) P750,000.00. (B) tax
P500,000.00. (C)
P350,000.00. (D)
P600,000.00.
The spouses Helena and Spli
Federico wanted to donate tting
a parcel of land to their son Met
(C) The spouses should each donate a P110,000.00 portion of the value of the
Dondon who is getting hod
3 property in 2011 then each should donate P100,000.00 in 2012. (UP LAW Donor’s Tax
married in December, 2011. for 2011
9 COMPLEX & PHILIPPINE ASSOCIATION Tax Basis
The parcel of land has a the
OF LAW SCHOOLS)
zonal valuation of com
P420,000.00. What is the puta
most efficient mode of tion
 donating the property?
(A) The spouses should first
donate in 2011 a portion of
the property valued at
P20,000.00 then spread the
P400,000.00 equally for
2012, 2013, 2014 and 2015.
(B) Spread the donation
over a period of 5 years by
the spouses donating
P100,000.00 each year from
2011 to 2015. of
(C) The spouses should Don
each donate a P110,000.00 or's
portion of the value of the Tax
property in 2011 then each
should donate P100,000.00
in 2012.
(D) The spouses should
each donate a P100,000.00
portion of the value of the
property in 2011, and
another P100,000.00 each
in 2012. Then, in 2013,
Helena should donate the
remaining P20,000.00.
4 Exempted from donor‟s (A) for the use of the barangay. (UP LAW COMPLEX & PHILIPPINE Donor’s Exe Gifts 2011
0 taxation are gifts made ASSOCIATION Tax mpti mad
(A) for the use of the OF LAW SCHOOLS) ons e to
barangay. of a
(B) in consideration of gifts poli
marriage. from tical
(C) to a school which is a don sub
stock corporation. or's divis
 (D) to a for-profit
tax ion
government corporation.
Celia donated P110,000.00
to her friend Victoria who
was getting married. Celia
gave no other gift during
the calendar year. What is
the donor's tax implication
on Celia's donation? (A) The
P100,000.00 portion of the
Sch
donation is exempt since
Pers edul
given in consideration of
4 (C) Celia shall pay a 30% donor's tax on the P110,000.00 donation. (UP LAW Donor’s on e of
marriage. (B) A P10,000.00 2011
1 COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) Tax liabl Tax
portion of the donation is
e Rate
exempt being a donation in
s
consideration of marriage.
(C) Celia shall pay a 30%
donor's tax on the
P110,000.00 donation.
(D) The P100,000.00
portion of the donation is
exempt under the rate
schedule for donor's tax.
Levox Corporation wanted
to donate P5 million as Exe
Athl
prize money for the world mpti
ete'
professional billiard ons
s
championship to be held in of
4 (B) Yes, since the national sports association for billiards does not sanction the Donor’s Priz
the Philippines. Since the gifts 2011
2 event. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax es
Billiard Sports from
and
Confederation of the don
Awa
Philippines does not or's
rds
recognize the event, it was tax
held under the auspices of
 the International
Professional Billiards
Association, Inc. Is Levox
subject to the donor's tax
on its donation?
(A) No, so long as the
donated money goes
directly to the winners and
not through the
association.
(B) Yes, since the national
sports association for
billiards does not sanction
the event.
(C) No, because it is
donated as prize for an
international competition
under the billiards
association.

(D) Yes, but only that part

that exceeds the first
P100,000.00 of total Levox
donations for the calendar
year.
A non-stock, non-profit Exe Gifts
school always had cash flow mpti in
problems, resulting in ons favo
failure to recruit well- of r of
4 (B) Yes, because the donation is to be wholly used for administration Donor’s
trained administrative gifts edu 2011
3 purposes. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax
personnel to effectively from cati
manage the school. In don onal
2010, Don Leon donated or's /
P100 million pesos to the tax char
 school, provided the money
shall be used solely for
paying the salaries, wages,
and benefits of
administrative personnel.
The donation represents
less than 10% of Don Leon's
taxable income for the
year. Is he subject to
donor's taxes?(A) No, since itabl
the donation is actually, e
directly, and exclusively insti
used for educational tuti
purposes.(B) Yes, because ons
the donation is to be wholly
used for administration
purposes.(C) Yes, since he
did not obtain the requisite
NGO certification before he
made the donation.(D) No,
because the donation does
not exceed 10% of his
taxable income for 2010.
Tong Siok, a Chinese
billionaire and a Canadian
Com
resident, died and left
Class posi
assets in China valued at
ifica tion
P80 billion and in the
4 (A) P20 billion. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Estate tion of
Philippines assets valued at 2011
4 OF LAW SCHOOLS) Tax of Gro
P20 billion. For Philippine
Dece ss
estate tax purposes the
dent Esta
allowable deductions for
te
expenses, losses,
indebtedness, and taxes,
 property previously taxed,
transfers for public use, and
the share of his surviving
spouse in their conjugal
partnership amounted to
P15 billion. Tong's gross
estate for Philippine estate
tax purposes is
(A) P20 billion.
(B) P5 billion.
(C) P100 billion.
(D) P85 billion.
Which among the following
reduces the gross estate
(not the net estate) of a
citizen of the Philippines for Excl
purposes of estate Exclu usio
taxation? sions ns
4 (D) Capital of the surviving spouse (UP LAW COMPLEX & PHILIPPINE Estate
(A) Transfers for public use from fro 2011
5 ASSOCIATION OF LAW SCHOOLS) Tax
(B) Property previously estat m
taxed e esta
(C) Standard deduction of te
P1 million
(D) Capital of the surviving
spouse
Don Fortunato, a widower, Tim
Time
died in May, 2011. In his e
and
will, he left his estate of and
Tran
P100 million to his four Tran
4 (C) All the four children, the tax to be divided equally among them. (UP LAW Estate sfer
children. He named his sfer 2011
6 COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) Tax of
compadre, Don Epitacio, to of
Prop
be the administrator of the Pro
ertie
estate. When the BIR sent a per
s
demand letter to Don ties
 Epitacio for the payment of
the estate tax, he refused
to pay claiming that he did
not benefit from the estate,
he not being an heir.
Forthwith, he resigned as
administrator. As a result of
the resignation, who may
be held liable for the
payment of the estate tax?
(A) Don Epitacio since the
tax became due prior to his
resignation.(B) The eldest
child who would be
reimbursed by the others.
(C) All the four children, the
tax to be divided equally
among them.(D) The person
designated by the will as
the one liable.
Gerardo died on July 31,
2011. His estate tax return
should be filed within
(A) six months from filing of
the notice of death. Estat
Filin
(B) sixty days from the e
4 (C) six months from the time he died on July 31, 2011. (UP LAW COMPLEX & Estate g of
appointment of an Tax 2011
7 PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax Ret
administrator. Retu
urn
(C) six months from the rn
time he died on July 31,
2011.
(D) sixty days from the time
he died on July 31, 2011.
4 Tong Siok, a Chinese (A) P20 billion. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Estate Class Com 2011
 billionaire and a Canadian
resident, died and left
assets in China valued at
P80 billion and in the
Philippines assets valued at
P20 billion. For Philippine
estate tax purposes the
allowable deductions for
posi
expenses, losses,
ifica tion
indebtedness, and taxes,
tion of
property previously taxed,
8 OF LAW SCHOOLS) Tax of Gro
transfers for public use, and
Dece ss
the share of his surviving
dent Esta
spouse in their conjugal
te
partnership amounted to
P15 billion. Tong's gross
estate for Philippine estate
tax purposes is
(A) P20 billion.
(B) P5 billion.
(C) P100 billion.
(D) P85 billion.
4 Which among the following (D) Capital of the surviving spouse (UP LAW COMPLEX & PHILIPPINE Estate Exclu Excl 2011
9 reduces the gross estate ASSOCIATION OF LAW SCHOOLS) Tax sions usio
(not the net estate) of a from ns
citizen of the Philippines for estat fro
purposes of estate e m
taxation? esta
(A) Transfers for public use te
(B) Property previously
taxed
(C) Standard deduction of
P1 million
(D) Capital of the surviving
 spouse
Don Fortunato, a widower,
died in May, 2011. In his
will, he left his estate of
P100 million to his four
children. He named his
compadre, Don Epitacio, to
be the administrator of the
estate. When the BIR sent a
demand letter to Don
Epitacio for the payment of
the estate tax, he refused Tim
Time
to pay claiming that he did e
and
not benefit from the estate, and
Tran
he not being an heir. Tran
5 (C) All the four children, the tax to be divided equally among them. (UP LAW Estate sfer
Forthwith, he resigned as sfer 2011
0 COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) Tax of
administrator. As a result of of
Prop
the resignation, who may Pro
ertie
be held liable for the per
s
payment of the estate tax? ties
(A) Don Epitacio since the
tax became due prior to his
resignation.(B) The eldest
child who would be
reimbursed by the others.
(C) All the four children, the
tax to be divided equally
among them.(D) The person
designated by the will as
the one liable.
Gerardo died on July 31, Estat Filin
5 2011. His estate tax return (C) six months from the time he died on July 31, 2011. (UP LAW COMPLEX & Estate e g of
2011
1 should be filed within PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax Tax Ret
(A) six months from filing of Retu urn
 the notice of death.
(B) sixty days from the
appointment of an
administrator.
(C) six months from the rn
time he died on July 31,
2011.
(D) sixty days from the time
he died on July 31, 2011.
Tong Siok, a Chinese
billionaire and a Canadian
resident, died and left
assets in China valued at
P80 billion and in the
Philippines assets valued at
P20 billion. For Philippine
estate tax purposes the
Com
allowable deductions for
Class posi
expenses, losses,
ifica tion
indebtedness, and taxes,
5 (A) P20 billion. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Estate tion of
property previously taxed, 2011
2 OF LAW SCHOOLS) Tax of Gro
transfers for public use, and
Dece ss
the share of his surviving
dent Esta
spouse in their conjugal
te
partnership amounted to
P15 billion. Tong's gross
estate for Philippine estate
tax purposes is
(A) P20 billion.
(B) P5 billion.
(C) P100 billion.
(D) P85 billion.
5 Which among the following (D) Capital of the surviving spouse (UP LAW COMPLEX & PHILIPPINE Estate Exclu Excl
2011
3 reduces the gross estate ASSOCIATION OF LAW SCHOOLS) Tax sions usio
 (not the net estate) of a
citizen of the Philippines for
purposes of estate
taxation? ns
(A) Transfers for public use from fro
(B) Property previously estat m
taxed e esta
(C) Standard deduction of te
P1 million
(D) Capital of the surviving
spouse
5 Don Fortunato, a widower, (C) All the four children, the tax to be divided equally among them. (UP LAW Estate Time Tim 2011
4 died in May, 2011. In his COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) Tax and e
will, he left his estate of Tran and
P100 million to his four sfer Tran
children. He named his of sfer
compadre, Don Epitacio, to Prop of
be the administrator of the ertie Pro
estate. When the BIR sent a s per
demand letter to Don ties
Epitacio for the payment of
the estate tax, he refused
to pay claiming that he did
not benefit from the estate,
he not being an heir.
Forthwith, he resigned as
administrator. As a result of
the resignation, who may
be held liable for the
payment of the estate tax?
(A) Don Epitacio since the
tax became due prior to his
resignation.(B) The eldest
child who would be
 reimbursed by the others.
(C) All the four children, the
tax to be divided equally
among them.(D) The person
designated by the will as
the one liable.
Gerardo died on July 31,
2011. His estate tax return
should be filed within
(A) six months from filing of
the notice of death. Estat
Filin
(B) sixty days from the e
5 (C) six months from the time he died on July 31, 2011. (UP LAW COMPLEX & Estate g of
appointment of an Tax 2011
5 PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax Ret
administrator. Retu
urn
(C) six months from the rn
time he died on July 31,
2011.
(D) sixty days from the time
he died on July 31, 2011.
5 Tong Siok, a Chinese (A) P20 billion. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Estate Class Com 2011
6 billionaire and a Canadian OF LAW SCHOOLS) Tax ifica posi
resident, died and left tion tion
assets in China valued at of of
P80 billion and in the Dece Gro
Philippines assets valued at dent ss
P20 billion. For Philippine Esta
estate tax purposes the te
allowable deductions for
expenses, losses,
indebtedness, and taxes,
property previously taxed,
transfers for public use, and
the share of his surviving
spouse in their conjugal
 partnership amounted to
P15 billion. Tong's gross
estate for Philippine estate
tax purposes is
(A) P20 billion.
(B) P5 billion.
(C) P100 billion.
(D) P85 billion.
Which among the following
reduces the gross estate
(not the net estate) of a
citizen of the Philippines for Excl
purposes of estate Exclu usio
taxation? sions ns
5 (D) Capital of the surviving spouse (UP LAW COMPLEX & PHILIPPINE Estate
(A) Transfers for public use from fro 2011
7 ASSOCIATION OF LAW SCHOOLS) Tax
(B) Property previously estat m
taxed e esta
(C) Standard deduction of te
P1 million
(D) Capital of the surviving
spouse
5 Don Fortunato, a widower, (C) All the four children, the tax to be divided equally among them. (UP LAW Estate Time Tim 2011
8 died in May, 2011. In his COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) Tax and e
will, he left his estate of Tran and
P100 million to his four sfer Tran
children. He named his of sfer
compadre, Don Epitacio, to Prop of
be the administrator of the ertie Pro
estate. When the BIR sent a s per
demand letter to Don ties
Epitacio for the payment of
the estate tax, he refused
to pay claiming that he did
not benefit from the estate,
 he not being an heir.
Forthwith, he resigned as
administrator. As a result of
the resignation, who may
be held liable for the
payment of the estate tax?
(A) Don Epitacio since the
tax became due prior to his
resignation.(B) The eldest
child who would be
reimbursed by the others.
(C) All the four children, the
tax to be divided equally
among them.(D) The person
designated by the will as
the one liable.
Gerardo died on July 31,
2011. His estate tax return
should be filed within
(A) six months from filing of
the notice of death. Estat
Filin
(B) sixty days from the e
5 (C) six months from the time he died on July 31, 2011. (UP LAW COMPLEX & Estate g of
appointment of an Tax 2011
9 PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax Ret
administrator. Retu
urn
(C) six months from the rn
time he died on July 31,
2011.
(D) sixty days from the time
he died on July 31, 2011.
In January 2011, the BIR Taxp
issued a ruling that (B) No, because he acted in bad faith when he claimed a lower net retail price TAX ayer' Asse
6
Clemen's vodka imports than what he actually used. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF REMEDI s ssm 2011
0
were not subject to LAW SCHOOLS) ES rem ent
increased excise tax based edie
on his claim that his net s
retail price was only P200
per 750 milliliter bottle.
This ruling was applied to
his imports for May, June,
and July 2011. In
September 2011, the BIR
revoked its ruling and
assessed him for deficiency
taxes respecting his May,
June and July 2011 vodka
imports because it
discovered that his net
retail price for the vodka
was P250 per bottle from
January to September 2011.
Does the retroactive
application of the
revocation violate Clemen's
right to due process as a
taxpayer?
(A) Yes, since the
presumption is that the BIR
ascertained the facts before
it made its ruling.
(B) No, because he acted in
bad faith when he claimed
a lower net retail price than
what he actually used.
(C) No, since he could avail
of remedies available for
disputing the assessment.
(D) Yes, since he had
already acquired a vested
 right in the favorable BIR
ruling.B34
On July 31, 2011, Esperanza
received a preliminary
assessment notice from the
BIR demanding that she Taxp
pays P180,000.00 ayer'
TAX Asse
6 deficiency income taxes on s
(D) 15 days. (UP LAW COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) REMEDI ssm 2011
1 her 2009 income. How rem
ES ent
many days from July 31, edie
2011 should Esperanza s
respond to the notice?(A)
180 days. (B) 30 days.(C) 60
days.(D) 15 days.
The BIR could not avail
itself of the remedy of levy
and distraint to implement,
through collection, an
assessment that has
become final, executory,
and demandable where Gov Ad
(A) the subject of the ern mini
assessment is an income (B) the amount of the tax involved does not exceed P100.00. (UP LAW TAX men stra
6
tax. COMPLEX & PHILIPPINE ASSOCIATION REMEDI t tive 2011
2
(B) the amount of the tax OF LAW SCHOOLS) ES Rem Rem
involved does not exceed edie edie
P100.00. s s
(C) the corporate taxpayer
has no other uncollected
tax liability.
(D) the taxpayer is an
individual compensation
income earner.
6 Which among the following (C) Proof that the assessment is utterly without foundation, arbitrary, and TAX Taxp Asse 2011
 circumstances negates the
prima facie presumption of
correctness of a BIR
assessment?
(A) The BIR assessment was
seasonably protested
within 30 days from receipt.
ayer'
(B) No preliminary
s
assessment notice was capricious. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION REMEDI ssm
3 rem
issued prior to the OF LAW SCHOOLS) ES ent
edie
assessment notice.
s
(C) Proof that the
assessment is utterly
without foundation,
arbitrary, and capricious.
(D) The BIR did not include
a formal letter of demand
to pay the alleged
deficiency.
On March 30, 2005 Miguel
Foods, Inc. received a
notice of assessment and a
letter of demand on its
April 15, 2002 final Taxp
adjustment return from the ayer'
(B) Yes. The BIR has 5 years from the issuance of the final assessment within TAX Coll
6 BIR. Miguel Foods then filed s
which to collect. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW REMEDI ecti 2011
4 a request for rem
SCHOOLS) ES on
reinvestigation together edie
with the requisite s
supporting documents on
April 25, 2005. On June 2,
2005, the BIR issued a final
assessment reducing the
 amount of the tax
demanded. Since Miguel
Foods was satisfied with
the reduction, it did not do
anything anymore. On April
15, 2010 the BIR garnished
the corporation's bank
deposits to answer for the
tax liability. Was the BIR
action proper?(A) Yes. The
BIR has 5 years from the
filing of the protest within
which to collect. (B) Yes.
The BIR has 5 years from
the issuance of the final
assessment within which to
collect. (C) No. The
taxpayer did not apply for a
compromise.(D) No.
Without the taxpayer‟s
prior authority, the BIR
action violated the Bank
Deposit Secrecy Law.
Spanflex Int‟l Inc. received
a notice of assessment from
the BIR. It seasonably filed a
Taxp
protest with all the
ayer'
necessary supporting (C) It may wait for the final decision of the BIR on his protest and appeal it to TAX Asse
6 s
documents but the BIR the CTA within 30 days from receipt of such decision. (UP LAW COMPLEX & REMEDI ssm 2011
5 rem
failed to act on the protest. PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ES ent
edie
Thirty days from the lapse
s
of 180 days from the filing
of its protest, Spanflex still
has not elevated the matter
 to the CTA. What remedy, if
any, can Spanflex take?
(A) It may file a motion to
admit appeal if it could
prove that its failure to
appeal was due to the
negligence of counsel.
(B) It may no longer appeal
since there is no BIR
decision from which it
could appeal.
(C) It may wait for the final
decision of the BIR on his
protest and appeal it to the
CTA within 30 days from
receipt of such decision.
(D) None. Its right to appeal
to the CTA has prescribed.
6 Anion, Inc. received a (C) Anion must waive its right to the secrecy of its bank deposits. (UP LAW TAX Com Com 2011
6 notice of assessment and a COMPLEX & PHILIPPINE ASSOCIATIONOF LAW SCHOOLS) REMEDI pro pro
letter from the BIR ES mise mis
demanding the payment of and e
P3 million pesos in Abat
deficiency income taxes for eme
the taxable year 2008. The nt of
financial statements of the Taxe
company show that it has s
been suffering financial
reverses from the year
2009 up to the present. Its
asset position shows that it
could pay only P500,000.00
which it offered as a
compromise to the BIR.
 Which among the following
may the BIR require to
enable it to enter into a
compromise with Anion,
Inc.? (A) Anion must show it
has faithfully paid taxes
before 2009. (B) Anion
must promise to pay its
deficiency when financially
able. (C) Anion must waive
its right to the secrecy of its
bank deposits. (D) Anion
must immediately deposit
the P500,000.00 with the
BIR.
When a BIR decision
affirming an assessment is
appealed to the CTA, the
BIR's power to garnish the
taxpayer's bank deposits
(A) is suspended to await
the finality of such decision.
Taxp
(B) is suspended given that
ayer'
the CTA can reverse BIR (D) is not suspended since the continued existence of government depends on TAX Coll
6 s
decisions when prejudicial tax revenues. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION REMEDI ecti 2011
7 rem
to the taxpayer. OF LAW SCHOOLS) ES on
edie
(C) is not suspended
s
because only final decisions
of the BIR are subject to
appeal.
(D) is not suspended since
the continued existence of
government depends on
tax revenues.
 Jeopardy assessment is a
valid ground to
compromise a tax liability
(A) involving deficiency Com
income taxes only, but not pro
for other taxes. mise
Com
(B) because of doubt as to TAX and
6 (B) because of doubt as to the validity of the assessment. (UP LAW COMPLEX pro
the validity of the REMEDI Abat 2011
8 & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) mis
assessment. ES eme
e
(C) if the compromise nt of
amount does not exceed Taxe
10% of the basic tax. s
(D) only when there is an
approval of the National
Evaluation Board.
6 As a general rule, within (B) Within 30 days from receipt of the denial which must not exceed 2 years TAX Taxp Refu 2011
9 what period must a from payment of income tax. (UP LAW COMPLEX & PHILIPPINE REMEDI ayer' nd
taxpayer elevate to the ASSOCIATIONOF LAW SCHOOLS) ES s
Court of Tax Appeals a rem
denial of his application for edie
refund of income tax s
overpayment?(A) Within 30
days from receipt of the
Commissioner‟s denial of
his application for refund.
(B) Within 30 days from
receipt of the denial which
must not exceed 2 years
from payment of income
tax.(C) Within 2 years from
payment of the income
taxes sought to be
refunded. (D)
Within 30 days from receipt
 of the denial or within two
years from payment.
What is the effect on the
tax liability of a taxpayer
who does not protest an
assessment for deficiency
taxes?
(A) The taxpayer may
appeal his liability to the
CTA since the assessment is
a final decision of the
Commissioner on the
Taxp
matter.
ayer'
(B) The BIR could already (C) The taxpayer's liability becomes fixed and subject to collection as the TAX Asse
7 s
enforce the collection of assessment becomes final and collectible. (UP LAW COMPLEX & PHILIPPINE REMEDI ssm 2011
0 rem
the taxpayer's liability if it ASSOCIATION OF LAW SCHOOLS) ES ent
edie
could secure authority from
s
the CTA.
(C) The taxpayer's liability
becomes fixed and subject
to collection as the
assessment becomes final
and collectible.
(D) The taxpayer's liability
remains suspended for 180
days from the expiration of
the period to protest.
7 There is prima facie (D) deductions claimed exceed by 30% the actual deductions. (UP LAW TAX Taxp Asse 2011
1 evidence of a false or COMPLEX & PHILIPPINE ASSOCIATION REMEDI ayer' ssm
fraudulent return where OF LAW SCHOOLS) ES s ent
the rem
(A) tax return was amended edie
after a notice of assessment s
was issued.
 (B) tax return was filed
beyond the reglementary
period.
(C) taxpayer changed his
address without notifying
the BIR.
(D) deductions claimed
exceed by 30% the actual
deductions.
No action shall be taken by
the BIR on the taxpayer‟s
disputed issues until the
taxpayer has paid the
deficiency taxes (A)
when the assessment was
issued against a false and Taxp
fraudulent return. ayer'
TAX Asse
7 (B) if there was a failure to (D) attributable to the undisputed issues in the assessment notice. (UP LAW s
REMEDI ssm 2011
2 pay the deficiency tax COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) rem
ES ent
within 60 days from BIR edie
demand. (C) if s
the Regional Trial Court
issues a writ of preliminary
injunction to enjoin the BIR.
(D) attributable to the
undisputed issues in the
assessment notice.
What should the BIR do
Taxp
when the prescriptive
ayer'
period for the assessment TAX Asse
7 (C) Issue a jeopardy assessment coupled with a letter of demand. (UP LAW s
of a tax deficiency is about REMEDI ssm 2011
3 COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) rem
to prescribe but the ES ent
edie
taxpayer has not yet
s
complied with the BIR
 requirements for the
production of books of
accounts and other records
to substantiate the claimed
deductions, exemptions or
credits?
(A) Call the taxpayer to a
conference to explain the
delay.
(B) Immediately conduct an
investigation of the
taxpayer's activities.
(C) Issue a jeopardy
assessment coupled with a
letter of demand.
(D) Issue a notice of
constructive distraint to
protect government
interest.
7 The taxpayer seasonably (B) August 30, 2011. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION TAX Taxp Asse 2011
4 filed his protest together OF LAW SCHOOLS) REMEDI ayer' ssm
with all the supporting ES s ent
documents. It is already rem
July 31, 2011, or 180 days edie
from submission of the s
protest but the BIR
Commissioner has not yet
decided his protest.
Desirous of an early
resolution of his protested
assessment, the taxpayer
should file his appeal to the
Court of Tax Appeals not
later than
 (A) August 31, 2011.
(B) August 30, 2011.
(C) August 15, 2011.
(D) August 1, 2011.
Which of the following are
NOT usually imposed when Stat
there is a tax amnesty? (A) utor
Civil, criminal, and y Civil
TAX
7 administrative penalties (B) (A) Civil, criminal, and administrative penalties (UP LAW COMPLEX & offe Pen
REMEDI 2011
5 Civil and criminal PHILIPPINE ASSOCIATION OF LAW SCHOOLS) nses altie
ES
penalties(C) Civil and and s
administrative penalties(D) pena
Criminal and administrative lties
penalties
7 In "Operation Kandado," (D) there was an understatement of taxable sales or receipts by 30% or more TAX Gov Ad 2011
6 the BIR temporarily closed for the taxable quarter. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION REMEDI ern mini
business establishments, OF LAW SCHOOLS) ES men stra
including New Dynasty t tive
Corporation that failed to Rem rem
comply with VAT edie edie
regulations. New Dynasty s s
contends that it should not
be temporarily closed since
it has a valid and existing
VAT registration, it
faithfully issued VAT
receipts, and filed the
proper VAT returns. The
contention may be rejected
if the BIR investigation
reveals that
(A) the taxpayer has not
been regularly filing its
income tax returns for the
 past 4 years.
(B) the taxpayer
deliberately filed a false
and fraudulent return with
deliberate intention to
evade taxes.

(C) the taxpayer used

falsified documents to
support its application for
refund of taxes.
(D) there was an
understatement of taxable
sales or receipts by 30% or
more for the taxable
quarter.
7 Mia, a compensation (A) No. The 3 year prescriptive period started to run on April 15, 2008, hence, TAX Taxp Asse 2011
7 income earner, filed her it has not yet expired on April 10, 2011. (UP LAW COMPLEX & PHILIPPINE REMEDI ayer' ssm
income tax return for the ASSOCIATION ES s ent
taxable year 2007 on March OF LAW SCHOOLS) rem
30, 2008. On May 20, 2011, edie
Mia received an assessment s
notice and letter of demand
covering the taxable year
2007 but the postmark on
the envelope shows April
10, 2011. Her return is not a
false and fraudulent return.
Can Mia raise the defense
of prescription?
(A) No. The 3 year
prescriptive period started
to run on April 15, 2008,
hence, it has not yet
 expired on April 10, 2011.
(B) Yes. The 3 year
prescriptive period started
to run on April 15, 2008,
hence, it had already
expired by May 20, 2011.
(C) No. The prescriptive
period started to run on
March 30, 2008, hence, the
3 year period expired on
April 10, 2011.
(D) Yes. Since the 3-year
prescriptive period started
to run on March 30, 2008, it
already expired by May 20,
2011.
Real property taxes should
not disregard increases in
the value of real property Princ
occurring over a long period General iples Fisc
of time. To do otherwise Principl of al
7 (B) fiscal adequacy. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW
would violate the canon of es of soun ade 2011
8 SCHOOLS)
a sound tax system referred Taxatio d tax qua
to as(A) theoretical justice. n syste cy
(B) fiscal adequacy.(C) m
administrative feasibility.
(D) symbiotic relationship.
Which theory in taxation Theo
states that without taxes, a General ry Life
government would be Principl and bloo
7 (B) Lifeblood theory (UP LAW COMPLEX & PHILIPPINE ASSOCIATION
paralyzed for lack of power es of Basis d 2011
9 OF LAW SCHOOLS)
to activate and operate it, Taxatio of the
resulting in its destruction? n Taxa ory
tion
 (A) Power to destroy theory
(B) Lifeblood theory
(C) Sumptuary theory
(D) Symbiotic doctrine
Which among the following
concepts of taxation is the
basis for the situs of income
Theo
taxation? Sym
General ry
(A) Lifeblood doctrine of bioti
Principl and
8 taxation (B) Symbiotic relation in taxation (UP LAW COMPLEX & PHILIPPINE c
es of Basis 2011
0 (B) Symbiotic relation in ASSOCIATION OF LAW SCHOOLS) rela
Taxatio of
taxation tion
n Taxa
(C) Compensatory purpose ship
tion
of taxation
(D) Sumptuary purpose of
taxation
Double taxation in its
general sense means taxing
the same subject twice
during the same taxing
period. In this sense,
General Doct
double taxation Dou
(C) violates the right to equal protection. (UP LAW COMPLEX & PHILIPPINE Principl rines
8 (A) violates substantive due ble
ASSOCIATION es of in 2011
1 process. taxa
OF LAW SCHOOLS) Taxatio Taxa
(B) does not violate tion
n tion
substantive due process.
(C) violates the right to
equal protection.
(D) does not violate the
right to equal protection.
The power to tax is the General Doct Pow
(D) No. The Supreme Court may nullify a tax law, hence, property rights are
8 power to destroy. Is this Principl rines er
not affected. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW 2011
2 always so?(A) No. The es of in to
SCHOOLS)
Executive Branch may Taxatio Taxa tax
 decide not to enforce a tax
law which it believes to be
confiscatory. (B) Yes. The
tax collectors should
enforce a tax law even if it invo
results to the destruction of lves
the property rights of a the
taxpayer. (C) Yes. Tax laws pow
n tion
should always be enforced er
because without taxes the to
very existence of the State dest
is endangered. (D) roy
No. The Supreme Court
may nullify a tax law,
hence, property rights are
not affected.
8 Anne Lapada, a student (B) That tax money is being extracted and spent in violation of the General Doct Tax 2011
3 activist, wants to impugn constitutionally guaranteed right to freedom of communication. (UP LAW Principl rines pay
the validity of a tax on text COMPLEX & PHILIPPINE ASSOCIATION es of in er
messages. Aside from OF LAW SCHOOLS) Taxatio Taxa suit
claiming that the law n tion
adversely affects her since
she sends messages by text,
what may she allege that
would strengthen her claim
to the right to file a
taxpayer‟s suit?
(A) That she is entitled to
the return of the taxes
collected from her in case
the court nullifies the tax
measure.
(B) That tax money is being
extracted and spent in
 violation of the
constitutionally guaranteed
right to freedom of
communication.
(C) That she is filing the
case in behalf of a
substantial number of
taxpayers.
(D) That text messages are
an important part of the
lives of the people she
represents.
The actual effort exerted by
the government to effect
the exaction of what is due General
Stag
from the taxpayer is known Principl Coll
8 (D) collection. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION es of
as es of ecti 2011
4 OF LAW SCHOOLS) Taxa
(A) assessment. Taxatio on
tion
(B) levy. n
(C) payment.
(D) collection.
Although the power of
taxation is basically
legislative in character, it is
NOT the function of
Congress to General
Stag
(A) fix with certainty the (B) collect the tax levied under the law. (UP LAW COMPLEX & PHILIPPINE Principl Coll
8 es of
amount of taxes. ASSOCIATION es of ecti 2011
5 Taxa
(B) collect the tax levied OF LAW SCHOOLS) Taxatio on
tion
under the law. n
(C) identify who should
collect the tax.
(D) determine who should
be subject to the tax.
 An example of a tax where
the concept of progressivity Acc
finds application is the (A) General ordi
Kind
income tax on individuals. Principl ng
8 (A) income tax on individuals. (UP LAW COMPLEX & PHILIPPINE s of
(B) excise tax on petroleum es of to 2011
6 ASSOCIATIONOF LAW SCHOOLS) taxe
products.(C) value-added Taxatio grad
s
tax on certain articles.(D) n uati
amusement tax on boxing on
exhibitions.
Importation of goods is
deemed terminated:
(A) When the customs
duties are paid, even if the
goods remain within the
customs premises;
Begi
(B) When the goods are
nnin
released or withdrawn from Requ
g
the customs house upon (B) When the goods are released or withdrawn from the customs house upon irem
Tariff and
payment of the customs payment of the customs duties or with legal permit to withdraw; ents
and endi
1 duties or with legal permit of 2012
Custom ng
to withdraw; According to Section 1202, Tariff and Customs Code impo
s of
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) rtati
imp
(C) When the goods enter on
orta
Philippine territory and
tion
remain within the customs
house within thirty (30)
days from date of entry;
(D) When there is part
payment of duties on the
imported goods located in
the customs area.
A protest against an (D) The Collector of Customs. Tariff Rem Tax
2 2012
assessment issued by the and edie pay
 Collector of Customs for
unpaid customs duties on
imported goods shall be
filed with:

(A) The Commissioner of

According to Section 2308, Tariff and Customs Code Custom
Customs; s er
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s
(B) The Regional Trial Court;

(C) The Court of Tax

Appeals;
(D) The Collector of
Customs.
The dutiable value of an
imported article subject to
an ad valorem rate of duty Ordi
Class
under existing law shall be: (D) The transaction value. nary
Tariff ifica
/
and tion
3 (A) The home consumption According to Section 201, Tariff and Customs Code, as amended by RA 8181 regu 2012
Custom of
value; dated March 28, 1996. lar
s duti
(B) The total value; (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) duti
es
(C) The total landed cost; es

(D) The transaction value.

The imported articles shall
in any case be subject to
Ordi
the regular physical Class
nary
examination when: (B) The number, weight and nature of packages indicated in the customs entry Tariff ifica
/
(A) The importer disagrees declaration and supporting documents differ from that in the manifest; and tion
4 regu 2012
with the findings as According to Sec. 1401, Tariff and Customs Code, as amended by RA 7650.(UP Custom of
lar
contained in the LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s duti
duti
government surveyor‟s es
es
report‟ (B)
The number, weight and
 nature of packages
indicated in the customs
entry declaration and
supporting documents
differ from that in the
manifest;
(C) The container is not
leaking or damaged;
(D) The shipment is covered
by alert/hold orders issued
pursuant to an existing
order.
5 Which statement is (C) Legislative acts passed by the municipal council in the exercise of its Local Natu auth 2012
correct? lawmaking authority are denominated as ordinances; Govern re orit
ment and y to
(A) Legislative acts passed According to Section 2227, Revised Administrative Code of 1917 Taxatio Sour issu
by the municipal council in (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n ce of e
the exercise of its Taxi loca
lawmaking authority are ng l tax
denominated as resolutions Pow ordi
and ordinances; er nan
(B) Legislative acts passed ces
by the municipal council in
the exercise of its
lawmaking authority are
denominated as
resolutions;
(C) Legislative acts passed
by the municipal council in
the exercise of its
lawmaking authority are
denominated as
ordinances;
(D) Both ordinances and
 resolutions are solemn and
formal acts.
Which of the following
statements is NOT a test of auth
Natu
a valid ordinance? orit
re
(A) It must not contravene (D) It may prohibit or regulate trade. y to
Local and
the Constitution or any issu
Govern Sour
statute; Explanation: To be valid, an ordinance must not prohibit but may regulate e
6 ment ce of 2012
(B) It must not be unfair or trade. (Magtajas v. Pryce Properties Corporation, Inc., G.R. No. 111097, July loca
Taxatio Taxi
oppressive; 20, 1994) l tax
n ng
(C) It must not be partial or (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ordi
Pow
discriminatory; nan
er
(D) It may prohibit or ces
regulate trade.
7 Taxing power of local (A) Income tax on banks and other financial institutions; Local Com Com 2012
government units shall NOT Govern mon mon
extend to the following According to Section 186, RA 7160 ment Limit Limi
taxes, except one: (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio ation tati
n s ons
(A) Income tax on banks on on
and other financial the the
institutions; taxin taxi
(B) Taxes of any kind on the g ng
national government, its pow pow
agencies and ers ers
instrumentalities, and local of of
government units; LGU LGU
(C) Taxes on agricultural
and aquatic products when
sold by the marginal
farmers or fishermen;

(D) Excise taxes on articles

enumerated under the
 National Internal Revenue
Code.
Which statement on
prescriptive periods is true?
Peri
(A) The prescriptive periods
ods
to assess taxes in the
of
National Internal Revenue
asse
Code and the Local
ssm
Government Code are the Taxp
ent
same; ayer'
and
(B) Local taxes shall be s
Local coll
assessed within five (5) rem
(B) Local taxes shall be assessed within five (5) years from the date they Govern ecti
years from the date they edie
8 became due; According to Section 194, RA 7160(UP LAW ment on 2012
became due; s
COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio of
(C) Action for the collection (Loc
n loca
of local taxes may be al
l
instituted after the Taxe
taxe
expiration of the period to s)
s,
assess and to collect the
fees
tax; (D) Local taxes may
and
be assessed within ten (10)
char
years from discovery of the
ges
underpayment of tax which
does not constitute fraud.
The appraisal, assessment,
levy and collection of real
Fund Fun
property tax shall be guided
(D) The appraisal and assessment of real property shall be based on audited Real ame dam
by the following principles.
financial statements of the owner. Propert ntal enta
Which statement does NOT
9 y princ l 2012
belong here?
According to Section 198, RA 7160 Taxatio iples prin
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n (RPT cipl
(A) Real property shall be
) es
appraised at its current and
fair market value;
 (B) Real property shall be
classified for assessment
purposes on the basis of its
actual use;

(C) Real property shall be

assessed on the basis of a
uniform classification
within each local political
subdivision;
(D) The appraisal and
assessment of real property
shall be based on audited
financial statements of the
owner.
1 The Manila International (D) MIAA is a government-owned or controlled corporation because it is Real Impo exe 2012
0 Airport Authority (MIAA) is required to meet the test of economic viability. Propert sitio mp
exempt from real property y n of tion
tax. Which statement According to MIAA vs. City of Pasay, G.R. No. 163072, April 2, 2009 Taxatio Real fro
below is NOT correct? (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n Prop m
(A) MIAA is not a erty real
government-owned or Tax pro
controlled corporation pert
because it is not organized y
as a stock or non-stock tax
corporation;
(B) MIAA is a government
instrumentality vested with
corporate powers and
performing essential public
services;
(C) MIAA is not a taxable
entity because the real
 property is owned by the
Republic of the Philippines
and the beneficial use of
such property has not been
granted to a private entity;

(D) MIAA is a government-

owned or controlled
corporation because it is
required to meet the test of
economic viability.
For purposes of real Impo
property taxes, the tax Real sitio
rates are applied on:(A) Propert n of Rate
1 (C) Assessed values; According to Section 233, RA 7160(UP LAW
Zonal values; (B) Fair y Real s of 2012
1 COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
market value; Taxatio Prop Levy
(C) Assessed values; n erty
(D) Reproduction values, Tax
One of the local
government units below
(A) Bacoor, Cavite; Pow
does NOT have the power
Impo er
to impose real property tax:
According to Section 200,RA 7160 [Note: The answer above is premised on the Real sitio to
belief that Bacoor is a municipality and the LGC does not vest municipalities Propert n of levy
1 (A) Bacoor, Cavite;
with the power to impose real property taxes, except for municipalities within y Real real 2012
2
the Metropolitan Manila area. However, Bacoor is already a city hence, can no Taxatio Prop pro
(B) Davao, City;
longer be a correct choice. Since the question did not provide for the CORRECT n erty pert
answer, it should be treated as a bonus.] Tax y
(C) Tarlac Province;
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) tax
(D) Malabon, Metro Manila.
Where the real property tax (C) To file an appeal with the Provincial Board of Assessment Appeals within Real Taxp App
1 assessment is erroneous, sixty (60) days from receipt of the assessment; Propert ayer' eal
2012
3 the remedy of the property y s to
owner is: According to Section 226, RA 7160 Taxatio rem the
 (A) To file a claim for refund
in the Court of Tax Appeals
if he has paid the tax,
within thirty (30) days from
date of payment;
(B) To file an appeal with Loca
the Provincial Board of l
Assessment Appeals within Boa
edie
thirty (30) days from receipt rd
s
of the assessment; of
(Real
(C) To file an appeal with (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n Asse
Prop
the Provincial Board of sse
erty
Assessment Appeals within men
Tax)
sixty (60) days from receipt t
of the assessment; App
(D) To file an appeal with eals
the Provincial Board of
Assessment Appeals within
sixty (60) days from receipt
of the assessment and
paying the assessed tax
under protest.
The City Government of
Manila may NOT impose: Pow
(A) Basic real property tax Impo er
at 2% of the assessed value Local sitio to
(D) Special levy on lands within its territory specially benefited by public works
of real property; Govern n of levy
1 projects or improvements funded by it at 80% of the actual cost of the
(B) Additional levy on real ment Real real 2012
4 projects or improvements. According to Section 240, Ra 7160(UP LAW
property for the special Taxatio Prop pro
COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
education fund at 1% of the n erty pert
assessed value of real Tax y
property; (C) tax
Additional ad valorem tax
 on idle lands at a rate not
exceeding 5% of the
assessed value; (D)
Special levy on lands within
its territory specially
benefited by public works
projects or improvements
funded by it at 80% of the
actual cost of the projects
or improvements.
Mr. Jose Castillo is a
resident Filipino Citizen. He
purchased a parcel of land
in Makati City in 1970 at a
consideration of P1 Million.
In 2011, the land , which Dat
remained undeveloped and e of
Appr
idle, had a fair market value Effe
aisal
of P20Million. Mr. Antonio Mr. Castillo shall be liable to the real property tax based on the re-assessment ctivi
and
Ayala, another Filipino beginning 2012. All re-assessments made after the first day of any year shall Real ty of
asse
citizen, is very much take effect on the first day of January of the succeeding year (Section Propert Asse
1 ssme
interested in the property 221,LGC). [Note: The question is misleading. Mr. Castillo is liable to the real y ssm 2012
5 nt of
and he offered to buy the property tax on the property when he became the owner thereof although his Taxatio ent
real
same for P20 Million. The liability increases upon re-assessment of the property.] n or
prop
Assessor of Makati City re- (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Rea
erty
assessed in 2011 the sses
tax
property at P10 Million. sme
nt
When is Mr. Castillo liable
for real property tax on the
land beginning 2011 or
beginning 2012? Explain
your answer. (2%)
1 Income from the (C) The service is actually performed in the Philippines; Income Gros Situ 2012
 performance of service is
treated as income from
within the Philippines, if:
(A) The payment of
compensation for the
service is made in the
Philippines;
s of
s
(B) The contract calling for Taxatio Tax
6 According to Section 42, NIRC Inco
the performance of service n atio
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) me
is signed in the Philippines; n

(C) The service is actually

performed in the
Philippines;
(D) The recipient of service
income is a resident of the
Philippines.
For income tax purposes,
the source of the service
income is important for the
taxpayer, who is a:
(A) Filipino citizen residing
in Makati City; (B) Non-resident Filipino citizen working and residing in London, United Situ
Gros
(B) Non-resident Filipino Kingdom; According to: Section 23 in relation to Section 42, Income s of
1 s
citizen working and residing NIRC [NOTE: C is also a correct answer considering that resident aliens are also Taxatio Tax 2012
7 Inco
in London, United Kingdom; taxable only on income derived from within the Philippines](UP LAW n atio
me
(C) Japanese citizen who is COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n
married to a Filipina citizen
and residing in their family
home located in Fort
Bonifacio, Taguig City;(D)
Domestic corporation.
1 Interest income of a (A) Subject to the 30% income tax based on its net taxable income; Income Inco Tax 2012
 domestic commercial bank
derived from a peso loan to
a domestic corporation in
2010 is: atio
(A) Subject to the 30% n of
income tax based on its net dom
taxable income; Taxatio me estic
8 According to Section 27 (A)
n Tax corp
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
(B) Subject to the 20% final ora
withholding tax; tion
(C) Subject to the 7.5% s
final withholding tax;
(D) Subject to 10% final
withholding tax.
1 A resident foreign (D) Organized under the laws of a foreign country that engages in business in Income Inco Kind 2012
9 corporation is one that is: Makati City, Philippines. Taxatio me s of
n Tax taxp
(A) Organized under the According to Section 22(H), NIRC ayer
laws of the Philippines that (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s
does business in another
country;
(B) Organized under the
laws of a foreign country
that sets up a regional
headquarter in the
Philippines doing product
promotion and information
dissemination;
(C) Organized under the
laws of the Philippines that
engages business in special
economic zone;
(D) Organized under the
laws of a foreign country
 that engages in business in
Makati City, Philippines.
A dealer in securities sold
unlisted shares of stocks of
a domestic corporation in
2010 and derived a gain of
P1 Million therefrom. The
gain is: (A) Taxable at 30% Taxa
Tax
regular corporate income tion
atio
tax based on net taxable of
(A) Taxable at 30% regular corporate income tax based on net taxable income; Income n of
2 income; dom
According to Section 22(U) in relation to Section 27, NIRC(UP LAW COMPLEX & Taxatio capi 2012
0 (B) Taxable at 5%/10% estic
PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n tal
capital gains tax based on corp
gain
net capital gain; (C) Taxable orati
s
at ½ of 1% stock transaction ons
tax based on the gross
selling price or fair market
value, whichever is higher
(D) Exempt from income
tax.
2 An individual, who is a real (C) Ordinary income tax at the graduated rates of 5% to 32% of net taxable Income Taxa Tax 2012
1 estate dealer, sold a income; Taxatio tion atio
residential lot in Quezon n of n of
City at a gain of According to Section 24, NIRC resid capi
P100,000.00 (selling price (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ent tal
of P900,000.00 and cost is citize gain
P800,000.00). The sale is ns, s
subject to income tax as non-
follows: resid
ent
(A) 6% capital gains tax on citize
the gain; ns,
and
(B) 6% capital gains tax on resid
 the gross selling price or
fair market value,
whichever is higher;

(C) Ordinary income tax at ent

the graduated rates of 5% alien
to 32% of net taxable s
income;

(D) 30% income tax on net

taxable income.
2 During the audit conducted (C) Is not deductible from gross income of the corporation due to non- Income Gros Ded 2012
2 by the BIR official, it was withholding of tax; Taxatio s ucti
found that the rental n Inco on
income claimed by the According to Section 34(K), NIRC me fro
corporation was not (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) m
subjected to expanded Gro
withholding tax. ss
Accordingly, the claimed Inco
rental expense: me

(A) Is deductible from the

gross income of the
corporation, despite non-
withholding of income tax
by the corporation;

(B) Is deductible from the

gross income of the
corporation, provided that
the 5% expanded
withholding tax is paid by
the corporation during the
audit;
 (C) Is not deductible from
gross income of the
corporation due to non-
withholding of tax;

(D) Is deductible, if it can be

shown that the lessor has
correctly reported the
rental income in his tax
return.
A general professional
partnership (GPP) is one:
(A) That is registered as
such with the Securities and
Exchange Commission and
the Bureau of Internal
Revenue; (B) That Gen
is composed of individuals (C) That exclusively derives income from the practice of the common eral
Kind
who exercise a common profession; According to Section 26, NIRC [Note:The prof
Income s of
2 profession; question is unfair because it gives an initial impression that the examiner is essi
Taxatio Taxp 2012
3 (C) That exclusively derives asking the statement which best characterizes a GPP but the real question is onal
n ayer
income from the practice of found after the enumeration of the choices which might not be noticed by the part
s
the common profession; examinee.](UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ners
(D) That derives hips
professional income and
rental income from
property owned by it.
Which statement above
does NOT properly refer to
a GGP?
The interest expense of a (B) Is deductible from the gross income of the borrower-corporation during Income Gros Ded
2
domestic corporation on a the year or it may be capitalized as part of cost of the equipment; Taxatio s ucti 2012
4
bank loan in connection n Inco on
 with the purchase of a
production equipment:
(A) Is not deductible from
gross income of the
borrower corporation;

(B) Is deductible from the

gross income of the fro
borrower-corporation m
during the year or it may be Gro
According to Section 34(B)(3), NIRC me
capitalized as part of cost of ss
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
the equipment; Inco
me
(C) Is deductible only for a
period of five years from
date of purchase;

(D) Is deductible only if the

taxpayer uses the cash
method of accounting.
The “all events test” refers (C) A person who uses the accrual method, whereby an expense is deductible Test
to: for the taxable year in which all the events had occurred which determined s in
(A) A person who uses the the fact of the liability and the amount thereof could be determined with dete
cash method where all reasonable accuracy; Explanation: The accrual of income rmi
sales have been fully paid and expense is permitted when the all-events test has been met. This test ning
by the buyers thereof; requires: (1) fixing of a right to income or liability to pay; and (2) the whe
Income
2 (B) A person who uses the availability of the reasonable accurate determination of such income or Inco ther
Taxatio 2012
5 instalment sales method, liability. The all-events test requires the right to income or liability be fixed, me inco
n
where the full amount of and the amount of such income or liability be determined with reasonable me
consideration is paid in full accuracy. However, the test does not demand that the amount of income or is
by the buyer thereof within liability be known absolutely, only that a taxpayer has at his disposal the earn
the year of sale;(C) A information necessary to compute the amount with reasonable accuracy. The ed
person who uses the all-events test is satisfied where computation remains uncertain, if its basis is for
accrual method, whereby unchangeable; the test is satisfied where a computation may be unknown, but tax
 an expense is deductible for
the taxable year in which all
the events had occurred
which determined the fact
of the liability and the
is not as much unknowable, within the taxable year. The amount of liability
amount thereof could be
does not have to be determined exactly; it must be determined with pur
determined with
“reasonable accuracy.” (Commissioner of Internal Revenue vs. Isabela Cultural pos
reasonable accuracy;(D) A
Corporation, G.R. No. 172231 February 12, 2007)(UP LAW COMPLEX & es
person who uses the
PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
completed method,
whereby the construction
project has been completed
during the year the contract
was signed.
2 All the items below are (D) Separation pay received by a retiring employee under a voluntary Income Gros Excl 2012
6 excluded from gross retirement program of the corporate employer. Taxatio s usio
income, except: n Inco ns
(A) Gain from sale of long- According to Section 32(B)(6) me fro
term bonds, debentures (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) m
and indebtedness; Gro
ss
(B) Value of property Inco
received by a person as me
donation or inheritance;

(C) Retirement benefits

received from the GSIS, SSS,
or accredited retirement
plan;

(D) Separation pay received

by a retiring employee
under a voluntary
retirement program of the
 corporate employer.
Which statement is
correct? A non-stock, non-
profit charitable association
that sells its idle agricultural
property is: (A)
Not required to file an
income tax return, nor pay
income tax one the
transaction to the BIR, Sour
provided the sales proceeds ces
are invested in another real of
(B) Required to pay the 6% capital gains tax on the gross selling price or fair Gros
estate during the year; Income inco
2 market value, whichever is higher; According to s
(B) Required to pay the 6% Taxatio me 2012
7 Section 30, NIRC(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW Inco
capital gains tax on the n subj
SCHOOLS) me
gross selling price or fair ect
market value, whichever is to
higher; (C) tax
Mandated to pay the 30%
regular corporate income
tax on the gain from sale;
(D) Required to withhold
the applicable expanded
withholding tax rate on the
transaction and remit the
same to the BIR.
ABS Corporation is a PEZA- Taxa
registered export tion
(A) ABS Corporation is subject to the 5% final tax on gross income earned, in
enterprise which of
lieu of all national and local taxes; Income Tax
2 manufactures cameras and dom
Taxatio pay 2012
8 sells all its finished products estic
According to Sections 23 & 24, RA 7916 n able
abroad. Which statement is corp
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
NOT correct? orati
ons
 (A) ABS Corporation is
subject to the 5% final tax
on gross income earned, in
lieu of all national and local
taxes;
(B) ABS Corporation is
exempt from the 30%
corporate income tax on
net income, provided it
pays value added tax.
(C) ABS Corporation is
subject to the 30%
corporate income tax on
net income;

(D) ABS Corporation is

exempt from all national
and local taxes, except real
property tax.
In 2006, Mr. Vicente Tagle, Taxa
a retiree, bought 10,000 tion
CDA shares that are of
unlisted in the local stock resid
exchange for P10 per share. ent Tax
In 2010, the said shares had (C) 5%/10% capital gains tax on the capital gain from sale of P40 per share citize atio
a book value per share of (P50 selling price less P10 cost) plus donor’s tax on the excess of the fair Income ns, n of
2
P60 per share. In view of a market value of the shares over the consideration; According Taxatio non- capi 2012
9
car accident in 2010, Mr. to Section 24(C) in relation to Section 100, NIRC; RR No. 6-2008(UP LAW n resid tal
Vicente Tagle had to sell his COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ent gain
CDA shares but he could citize s
sell the same only for P50 ns,
per share. The sale is and
subject to tax as follows: resid
(A) 5%/10% capital gains ent
 tax on the capital gain from
sale of P40 per share (P50
selling price less P10 cost);
(B) 5/%10% capital gains tax
on the capital gain of P50
per share, arrived at by
deducting the cost (P10 per
share) from the book value
(P60 per share);
(C) 5%/10% capital gains tax
alien
on the capital gain from
s
sale of P40 per share (P50
selling price less P10 cost)
plus donor’s tax on the
excess of the fair market
value of the shares over the
consideration;
(D) Graduated income tax
rates of 5% to 32% on the
net taxable income from
the sale of the shares.
X Corporation had excess
(B) X Corporation may not get the refund in 2009, but the amount being
income tax payment for the
claimed as refund may be utilized in succeeding years until fully exhausted
year 2008, which it chose to
because there is no prescriptive period for carryover of excess income tax Taxa
carryover in 2009. In filing
payments; tion
its 2009 corporate income
of Tax
tax return, it signified its Income
3 According to Section 76, NIRC The carryover of excess income tax payments is dom able
intention (by checking the Taxatio 2012
0 no longer limited to the succeeding taxable year. Unutilized excess income tax estic Peri
small box “refund” at the n
payments may now be carried over to the succeeding taxable years until fully corp od
bottom of the return) to get
utilized. In addition, the option to carryover excess income tax payments is orati
a refund of the overpaid
now irrevocable. Hence, unutilized excess income tax payments may no longer ons
amount in 2008. Can the
be refunded. (Belle Corp. v. CIR, G.R. No. 181298, January 10, 2011)
refund be allowed or not,
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
and if disallowed, does X
 Corporation lose the
claimed amount?
(A) X Corporation may not
get the refund because the
decision to carryover in
2008 was irrevocable for
that year, and it may not
change that decision in
succeeding years;
(B) X Corporation may not
get the refund in 2009, but
the amount being claimed
as refund may be utilized in
succeeding years until fully
exhausted because there is
no prescriptive period for
carryover of excess income
tax payments;
(C) X Corporation may get
the refund, provided that it
will no longer carryover
such amount or utilize the
same against its income tax
liability in the future;

(D) X Corporation may file

instead a claim of tax credit,
in lieu of refund.
Mr. Pedro Aguirre, a The old car is a capital asset. It is property held by the taxpayer (whether or Sour
resident citizen, is working not connected with his trade or business), but is not stock in trade of the Gros ces
Income
3 for a large real estate taxpayer or other property of a kind which would properly be included in the s of
Taxatio 2012
1 development company in inventory of the taxpayer if on hand at the close of the taxable year, or Inco Inco
n
the country and in 2010, he property held by the taxpayer primarily for sale to customers in the ordinary me me
was promoted to Vice- course of his trade or business, or property used in the trade or business, of a Subj
 President of the company.
With more responsibilities
comes higher pay. In 2011,
he decided to buy a new car
worth P2 Million and he
traded-in his old car with a
market value of
P800,000.00 and paid the
difference of P1.2 Million to
the car company. The old
car, which was bought character which is subject to the allowance for depreciation; or real property ect
three (3) years ago by the used in trade or business of the taxpayer (Section 39, NIRC).(UP LAW to
father of Mr. Pedro Aguirre COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) tax
at price of P700,000.00 was
donated by him and
registered in the name of
his son. The corresponding
donor’s tax thereon was
duly paid by the
father.What is the nature
of the old car – capital
asset or ordinary asset?
Explain your answer. (3%)
Mr. Pedro Aguirre, a Taxa
resident citizen, is working tion
for a large real estate of Tax
development company in resid atio
the country and in 2010, he Yes, Capital gain is P100,000. The amount of the taxable gain is subject to the Income ent n of
3
was promoted to Vice- holding period of the asset (Section 39, NIRC) Taxatio citize capi 2012
2
President of the company. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n ns, tal
With more responsibilities non- gain
comes higher pay. In 2011, resid s
he decided to buy a new car ent
worth P2 Million and he citize
 traded-in his old car with a
market value of
P800,000.00 and paid the
difference of P1.2 Million to
the car company. The old
car, which was bought
three (3) years ago by the
father of Mr. Pedro Aguirre ns,
at price of P700,000.00 was and
donated by him and resid
registered in the name of ent
his son. The corresponding alien
donor’s tax thereon was s
duly paid by the father.

Is Mr. Aguirre liable to pay

income tax on the gain
from the sale of his old
car? Explain your answer.
(5%)
Spouses Pablo Gonzales
and Teresita Gonzales, both
resident citizens acquire
Sour
during their marriage a
ces
residential house and lot
of
located in Makati City, Yes. Income to be declared: P600,000 (Rental Income P300,000 & Salary Gros
Income inco
3 which is being leased to a P300,000); Personal and Additional Exemption P75,000 (Basic of P50,000 & s
Taxatio me 2012
3 tenant for a monthly rental P25,000 for one minor child)(UP LAW COMPLEX & PHILIPPINE ASSOCIATION Inco
n subj
of P100,000.00. Mr. Pablo OF LAW SCHOOLS) me
ect
Gonzales is the President of
to
PG Corporation and he
tax
receives P50,000.00 salary
per month. The spouses
have only one (1) minor
 child. In late June 2010, he
was immediately brought
to the hospital because of
the heart attack and he was
pronounced dead on June
30, 2010.With no liabilities,
the estate of the late Pablo
Gonzales was settled extra-
judicially in early 2011.Is
Mr. Pablo Gonzales
required to file income tax
for 2010? If so, how much
income must he declare for
the year? How much
personal and additional
exemption is he entitled
to? Explain your answer.
(5%)
3 Spouses Pablo Gonzales Yes. Rental Income P600,000 (P300,000 share for January to June 2010 & Income Gros Sour 2012
4 and Teresita Gonzales, both P300,000 representing his interest in the income from the properties Taxatio s ces
resident citizens acquire comprising the estate for the period July to December). The share of the n Inco of
during their marriage a minor child in the rental income (P300,000) earned after death is not included me inco
residential house and lot in the return of the parent pursuant to Section 51(E) of the Tax Code. me
located in Makati City, (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) subj
which is being leased to a ect
tenant for a monthly rental to
of P100,000.00. Mr. Pablo tax
Gonzales is the President of
PG Corporation and he
receives P50,000.00 salary
per month. The spouses
have only one (1) minor
child. In late June 2010, he
was immediately brought
 to the hospital because of
the heart attack and he was
pronounced dead on June
30, 2010.With no liabilities,
the estate of the late Pablo
Gonzales was settled extra-
judicially in early 2011.

Is Mrs. Teresita Gonzales

required to file income tax
return fot 2010? If so, how
much income must she
declare for the year? How
much personal exemption
is she entitled to? Explain
your answer. (5%)
3 Spouses Pablo Gonzales No. It has acquired no tax personality because the estate is not under judicial Income Kind Esta 2012
5 and Teresita Gonzales, both settlement. The income of the properties is taxable to the heirs in their Taxatio s of tes
resident citizens acquire individual capacity in accordance with their respective interest in the n taxp and
during their marriage a inheritance. (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW ayer trus
residential house and lot SCHOOLS) s ts
located in Makati City,
which is being leased to a
tenant for a monthly rental
of P100,000.00. Mr. Pablo
Gonzales is the President of
PG Corporation and he
receives P50,000.00 salary
per month. The spouses
have only one (1) minor
child. In late June 2010, he
was immediately brought
to the hospital because of
the heart attack and he was
 pronounced dead on June
30, 2010.With no liabilities,
the estate of the late Pablo
Gonzales was settled extra-
judicially in early 2011.Is
the Estate of the late Pablo
Gonzales required to file
income tax return for
2010? If so, how much
income must it declare for
the year? How much
personal exemption is it
entitled to? Explain your
answer. (5%)
3 Mr. Pedro Aguirre, a P700,000. The basis of the property in the hands of the donee is the carry- Income Taxa Ded 2012
6 resident citizen, is working over basis (Section 40 (B)(3), NIRC) Taxatio tion ucti
for a large real estate (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n of ons
development company in resid fro
the country and in 2010, he ent m
was promoted to Vice- citize gros
President of the company. ns, s
With more responsibilities non- inco
comes higher pay. In 2011, resid me
he decided to buy a new car ent
worth P2 Million and he citize
traded-in his old car with a ns,
market value of and
P800,000.00 and paid the resid
difference of P1.2 Million to ent
the car company. The old alien
car, which was bought s
three (3) years ago by the
father of Mr. Pedro Aguirre
at price of P700,000.00 was
 donated by him and
registered in the name of
his son. The corresponding
donor’s tax thereon was
duly paid by the father.

How much is the cost basis

of the old car to Mr.
Aguirre? Explain your
answer (2%)
3 Anchor Banking No. A Domestic Corporation is taxable on all income derived from sources Income Inco Kind 2012
7 Corporation, which was within and without the Philippines (Section 23, NIRC). The income of the Taxatio me s of
organized in 2000 and foreign branch and that of the Home Office will be summed up for income tax n Tax taxp
existing under the laws of purposes following the “single entity” concept and will all be included in the ayer
the Philippines and owned gross income of the domestic corporation in the annual Philippine income tax s
by the Sy Family of Makati return.(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
City, set up in 2010 a
branch office in Shanghai
City, China, to take
advantage of the presence
of many Filipino workers in
that area and its booming
economy. During the year,
the bank ,management
decided not to include the
P20 Million net income of
the Shanghai Branch in the
annual Philippine income
tax return filed with the
BIR, which showed a net
taxable income of P30
Million , because the
Shanghai Branch is treated
as a foreign corporation
 and is taxed only on income
from sources within the
Philippines, and since the
loan and other business
transactions were done in
Shanghai, these incomes
are not taxable in the
PhilippinesIs the bank
correct in excluding the net
income of its Shanghai
Branch in the computation
of its annual corporate
income tax for 2010?
Explain your answer. (5%)
3 Anchor Banking No. The branch profit remittance tax is imposed only on remittances by Income Exclu Excl 2012
8 Corporation, which was branches of Foreign Corporation in the Philippines to their Home Office Taxatio ded ude
organized in 2000 and abroad. It is the outbound branch profits that is subject to the tax not the n in d in
existing under the laws of inbound profits (Section 28(A)(5), NIRC). the the
the Philippines and owned (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) sylla sylla
by the Sy Family of Makati bus bus
City, set up in 2010 a
branch office in Shanghai
City, China, to take
advantage of the presence
of many Filipino workers in
that area and its booming
economy. During the year,
the bank ,management
decided not to include the
P20 Million net income of
the Shanghai Branch in the
annual Philippine income
tax return filed with the
BIR, which showed a net
 taxable income of P30
Million , because the
Shanghai Branch is treated
as a foreign corporation
and is taxed only on income
from sources within the
Philippines, and since the
loan and other business
transactions were done in
Shanghai, these incomes
are not taxable in the
Philippines

Should the Shanghai

Branch of Anchor Bank
remit profit to its Head
Office in the Philippines in
2011, is the branch liable
to the 15% branch profit
remittance tax imposed
under Section 28 (A)(5) of
the 1997 Tax Code? Explain
your answer (5%)
Foster Corporation (FC) is a No. FC is not liable to Philippine income tax. The revenues from the design and
Singapore-based foreign supply contracts having been all done in Singapore are income from without,
corporation engaged in hence, not taxable to a foreign corporation in the Philippines (Section 42,
construction and NIRC; CIR v. Marubeni Corporation, G.R. No. 137377, December 18, 2001). Situ
Gros
installation projects. In Also, With respect to the installation of the project which are services Income s of
3 s
2010, Global Oil performed within, the same is sub-contracted to PCC, a domestic corporation. Taxatio Tax 2012
9 Inco
Corporation (GOC), a Since FC has no branch or permanent establishment in the Philippines, n atio
me
domestic corpoartion business profits earned by it pursuant to our treaty with Singapore are exempt n
engaged in the refinery of from income tax. [Note: if the examinee answered that the offshore portion of
petroleum products, the contract (design and supply) is not taxable in the Philippines while the
awarded an anti-pollution onshore portion (installation) is taxable invoking the source rules, it should be
project to Foster given full credit. The question might be too technical for students and
Corporation, whereby FC expected new entrants to tax practice to discern.](UP LAW COMPLEX &
shall design, supply PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
machinery and equipment,
and install an anti-pollution
device for GOC’s refinery in
the Philippines, provided
that the installation part of
the project may be sub-
contracted to a local
construction company.
Pursuant to the contract,
the design and supply
contracts were done in
Singapore by FC, while the
installation works were sub-
contracted by the FC with
the Philippine Construction
Corporation (PCC), a
domestic corporation. The
project with a total cost of
P100 Million was
completed in 2011 at the
following cost components:
(design – P20Million;
machinery and equipment
– P50 Million; and
installation –P30 Million).
Assume that the project
was 40% complete in 2010
and 100% complete in
2011, based on the
certificates issued by the
certificates issued by the
 architects and engineers
working on the project.
GOC paid FC as follows: P60
Million in 2010 and P40
Million in 2011, and FC paid
PCC ion foreign currency
through a Philippine bank
as follows: P10 Million in
2010 and P20 Million in
2011.Is FC liable to
Philippines income tax, and
if so, how much revenue
shall be reported by it in
2010 and in 2011? Explain
your answer. (5%)
4 On April 16, 2012, the Once the option to carry-over and apply the excess quarterly income tax Income Taxa Fina 2012
0 corporation filed its annual against income tax against income tax due for the taxable quarters of the Taxatio ble l
corporate income tax succeeding taxable years has been made such option shall be considered n Peri Adju
return for 2011, showing an IRREVOCABLE for the taxable year period and no application for tax refund or od stm
overpayment of income tax issuance of tax credit certificate shall be allowed therefore (Section 76, NIRC). ent
of P1 Million. Which is to be (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Ret
carried over to the urn
succeeding year(s). On May *
15, 2012, the corporation
sought advice from you and
said that it contemplates to
file an amended return for
2011, which shows that
instead of carry over of the
execss income tax payment,
the same shall be
considenred as a claim for
tax refund and the small
box shown as "refund" in
 the return will be filled up.
Withi a year, the
corporation will file the
formal request for refund
for the excess payment.Will
you recommend to the
corporation such a course
of action and justify that
the amended return is the
latest official act of the
corporation as to how it
may treat such
overpayment of tax or
should you consider the
option granted to
taxpayers as irrevocable,
once previously exercised
by it? Explain your answer.
(5%)
On April 16, 2012, the
corporation filed its annual
corporate income tax
return for 2011, showing an
Fina
overpayment of income tax Yes. The carry-over of excess income tax payments is no longer limited to the
l
of P1 Million. Which is to be succeeding taxable year. Unutilized excess income tax payments may now be
Taxa Adju
carried over to the carried over to the succeeding taxable years until fully utilized. In addition, the Income
4 ble stm
succeeding year(s). On May option to carry-over excess income tax payments is now irrevocable. Hence, Taxatio 2012
1 Peri ent
15, 2012, the corporation unutilized excess income tax payments may no longer be refunded (Belle n
od Ret
sought advice from you and Corp. v. CIR, G.R. No. 181298, January 10, 2011).
urn
said that it contemplates to (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
*
file an amended return for
2011, which shows that
instead of carry over of the
execss income tax payment,
 the same shall be
considenred as a claim for
tax refund and the small
box shown as "refund" in
the return will be filled up.
Withi a year, the
corporation will file the
formal request for refund
for the excess payment.

Should the petition for

review filed with the CTA
on the basisof the
amended tax return be
denied by the BIR and the
CTA, could the
corporationstill carry over
such excess payment of
income tax in the
succeeding years,
considering that there is no
precriptive period provided
for in the income tax law
with respect to carry over
of excess income tax
payments? Explain your
answer. (5%)
Mr. Jose Castillo is a Wh
resident Filipino Citizen. He No. Mr. Castillo is not liable for income tax in 2011 because no income is en
purchased a parcel of land realized by him during that year. Tax liability for income tax attaches only if Income inco
4 Inco
in Makati City in 1970 at a there is a gain realized resulting from a closed and complete transaction Taxatio me 2012
2 me
consideration of P1 Million. (Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1918).(UP LAW COMPLEX & n is
In 2011, the land , which PHILIPPINE ASSOCIATION OF LAW SCHOOLS) taxa
remained undeveloped and ble
 idle, had a fair market value
of P20Million. Mr. Antonio
Ayala, another Filipino
citizen, is very much
interested in the property
and he offered to buy the
same for P20 Million. The
Assessor of Makati City re-
assessed in 2011 the
property at P10 Million.Is
Mr. Castillo liable for
income tax in 2011 based
on the offer to buy by Mr.
Ayala? Explain your
answer. (3%)
4 Mr. Jose Castillo is a He shall be liable to pay the 6% capital gains tax (CGT) based on the Gross Income Taxa Tax 2012
3 resident Filipino Citizen. He Selling Price of the Property which is P20 Million plus the CGT assumed by the Taxatio tion atio
purchased a parcel of land buyer. He should file the return within 30 days from date of the sale (date of n of n of
in Makati City in 1970 at a notarization) and shall pay the tax as he files the return (Section 24(D), NIRC). resid capi
consideration of P1 Million. or ent tal
In 2011, the land , which The income tax due on the transaction is P1,276,595.74 which is computed as citize gain
remained undeveloped and 6% of the Gross Selling Price (GSP). The tax base of the 6% capital gains tax ns, s
idle, had a fair market value (CGT) is the higher between the GSP and the fair market value (FMV). The GSP non-
of P20Million. Mr. Antonio is P20 Million plus the CGT to be assumed by the buyer, following the doctrine resid
Ayala, another Filipino of constructive receipt of income or a total of P21,276,595.74, which amount ent
citizen, is very much is higher than the FMV of P20 Million. citize
interested in the property (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ns,
and he offered to buy the and
same for P20 Million. The resid
Assessor of Makati City re- ent
assessed in 2011 the alien
property at P10 Million. s

Should Mr. Castillo agree

 to sell the land to Mr.
Ayala in 2012 for P20
Million, subject to the
condition as stated in The
Deed of Sale that the buyer
shall assume the capital
gains tax thereon, how
musch is the income tax
due on the transaction and
when must the tax return
be filed and the tax be paid
by the taxpayer? Explain
your answer. (5%)
4 In May 2010, Mr. and Mrs. (D) Two (2) donations made by the spouses to Roberto are entitled to Donor’s Exe Dow 2012
4 Melencio Antonio donated deduction from the gross gift as donation proper nuptias. According to Tax mpti ries
a house and lot with a fair Section 101, NIRC; Tang Ho v. Court of Appeals(UP LAW COMPLEX & ons
market value of P10 million PHILIPPINE ASSOCIATION OF LAW SCHOOLS) of
to their son, Roberto, who gifts
is to be married during the from
same year to Josefina don
Angeles. Which statement or's
below is INCORRECT? tax
(A) There are four (4)
donations made - two (2)
donations are made by Mr.
Melencio Antonio to
Roberto and Josefina, and
two (2) donations are made
by Mrs. Antonio;(B) The
four (4) donations are made
by the Spouses Antonio to
members of the family,
hence, subject to the
graduated donor‟s tax rates
 (2%-15%);
(C) Two (2) donations are
made by the spouses to
members of the family,
while two (2) other
donations are made to
strangers; (D) Two (2)
donations made by the
spouses to Roberto are
entitled to deduction from
the gross gift as donation
proper nuptias.
4 On January 10, 2011, Maria (B) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is Donor’s Pers Sch 2012
5 Reyes, single-mother, P100,000.00; Tax on edul
donated cash in the liabl e of
amount of P50,000.00 to According to Section 99(A), NIRC e Tax
her daughter Cristina, and (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Rate
on December 20, 2011, she s
donated another
P50,000.00 to Cristina.
Which statement is
correct?

(A) Maria Reyes is subject

to donor‟s tax in 2011
because gross gift is
P100,000.00;

(B) Maria Reyes is exempt

from donor’s tax in 2011
because gross gift is
P100,000.00;
(C) Maria Reyes is exempt
from donor‟s tax in 2011
 only to the extent of
P50,000.00;

(D) Maria Reyes is exempt

from donor‟s tax in 2011
because the donee is
minor.
4 While he was traveling with (B) 14 Million; According to Section 85, NIRC(UP LAW Estate Com Wit 2012
6 friends, Mr. Jose Francisco, COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax posi h
resident Filipino citizen, tion resp
died on January 20, 2011 in of ect
a California Hospital, USA, Gros to
leaving personal and real s resi
properties with market Estat den
values as follows: House e t
and Lot in Quezon City- P10 citiz
million; Cash in bank in en
California - US$10,000.00;
Citibank in New York -
US$5,000.00; Cash in BPI
Makati - P4 million; Car in
Quezon City - P1 million;
Shares of stocks of Apple
Corporation, US
corporation listed in NY
Stock Exchange - US
$5,000.00. Funeral
expenses paid - P2 million.
Assume conversion rate of
US$1=Php50. His gross
estate for the Philippine
estate tax purposes shall
be: (A) 13
Million;
 (B) 14 Million;
(C) 15 Million;
(D) 16 Million
Jose Ramos, single, died of
a heart attack on October
10, 2011. leaving a
residential house and lot
with a market value of P1.8
Det
million and cash of Dete
ermi
P100,000.00. Funeral rmin
nati
expenses paid amounted to ation
on
P250,000.00. of
(A) His estate will be exempt from estate tax because the net estate is zero; of
Gros
Gro
4 (A) His estate will be Estate s
ss 2012
7 exempt from estate tax Tax Estat
According to Section 85 & 86, NIRC Esta
because the net estate is e
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) te
zero; and
and
(B) His estate will Net
Net
(C) His estate will be subject Estat
Esta
to estate tax because net e
te
estate is P1,700,000.00;
(D) His estate will be
subject to estate tax
because net estate is
P800,000.00.
While he was traveling with Wit
Com
friends, Mr. Jose Francisco, h
posi
resident Filipino citizen, resp
tion
died on January 20, 2011 in ect
4 (B) 14 Million; According to Section 85, NIRC(UP LAW Estate of
a California Hospital, USA, to 2012
8 COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax Gros
leaving personal and real resi
s
properties with market den
Estat
values as follows: House t
e
and Lot in Quezon City- P10 citiz
 million; Cash in bank in
California - US$10,000.00;
Citibank in New York -
US$5,000.00; Cash in BPI
Makati - P4 million; Car in
Quezon City - P1 million;
Shares of stocks of Apple
Corporation, US
corporation listed in NY
Stock Exchange - US
$5,000.00. Funeral en
expenses paid - P2 million.
Assume conversion rate of
US$1=Php50. His gross
estate for the Philippine
estate tax purposes shall
be: (A) 13
Million;
(B) 14 Million;
(C) 15 Million;
(D) 16 Million
4 Jose Ramos, single, died of (A) His estate will be exempt from estate tax because the net estate is zero; Estate Dete Det 2012
9 a heart attack on October Tax rmin ermi
10, 2011. leaving a ation nati
residential house and lot According to Section 85 & 86, NIRC of on
with a market value of P1.8 (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Gros of
million and cash of s Gro
P100,000.00. Funeral Estat ss
expenses paid amounted to e Esta
P250,000.00. and te
Net and
(A) His estate will be Estat Net
exempt from estate tax e Esta
because the net estate is te
 zero;
(B) His estate will
(C) His estate will be subject
to estate tax because net
estate is P1,700,000.00;
(D) His estate will be
subject to estate tax
because net estate is
P800,000.00.
5 While he was traveling with (B) 14 Million; According to Section 85, NIRC(UP LAW Estate Com Wit 2012
0 friends, Mr. Jose Francisco, COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax posi h
resident Filipino citizen, tion resp
died on January 20, 2011 in of ect
a California Hospital, USA, Gros to
leaving personal and real s resi
properties with market Estat den
values as follows: House e t
and Lot in Quezon City- P10 citiz
million; Cash in bank in en
California - US$10,000.00;
Citibank in New York -
US$5,000.00; Cash in BPI
Makati - P4 million; Car in
Quezon City - P1 million;
Shares of stocks of Apple
Corporation, US
corporation listed in NY
Stock Exchange - US
$5,000.00. Funeral
expenses paid - P2 million.
Assume conversion rate of
US$1=Php50. His gross
estate for the Philippine
estate tax purposes shall
 be: (A) 13
Million;
(B) 14 Million;
(C) 15 Million;
(D) 16 Million
Jose Ramos, single, died of
a heart attack on October
10, 2011. leaving a
residential house and lot
with a market value of P1.8
Det
million and cash of Dete
ermi
P100,000.00. Funeral rmin
nati
expenses paid amounted to ation
on
P250,000.00. of
(A) His estate will be exempt from estate tax because the net estate is zero; of
Gros
Gro
5 (A) His estate will be Estate s
ss 2012
1 exempt from estate tax Tax Estat
According to Section 85 & 86, NIRC Esta
because the net estate is e
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) te
zero; and
and
(B) His estate will Net
Net
(C) His estate will be subject Estat
Esta
to estate tax because net e
te
estate is P1,700,000.00;
(D) His estate will be
subject to estate tax
because net estate is
P800,000.00.
While he was traveling with Com Wit
friends, Mr. Jose Francisco, posi h
resident Filipino citizen, tion resp
5 (B) 14 Million; According to Section 85, NIRC(UP LAW Estate
died on January 20, 2011 in of ect 2012
2 COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Tax
a California Hospital, USA, Gros to
leaving personal and real s resi
properties with market Estat den
 values as follows: House
and Lot in Quezon City- P10
million; Cash in bank in
California - US$10,000.00;
Citibank in New York -
US$5,000.00; Cash in BPI
Makati - P4 million; Car in
Quezon City - P1 million;
Shares of stocks of Apple
Corporation, US
corporation listed in NY t
Stock Exchange - US e citiz
$5,000.00. Funeral en
expenses paid - P2 million.
Assume conversion rate of
US$1=Php50. His gross
estate for the Philippine
estate tax purposes shall
be: (A) 13
Million;
(B) 14 Million;
(C) 15 Million;
(D) 16 Million
Jose Ramos, single, died of Dete Det
a heart attack on October rmin ermi
10, 2011. leaving a ation nati
residential house and lot (A) His estate will be exempt from estate tax because the net estate is zero; of on
with a market value of P1.8 Gros of
5 Estate
million and cash of s Gro 2012
3 Tax
P100,000.00. Funeral According to Section 85 & 86, NIRC Estat ss
expenses paid amounted to (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) e Esta
P250,000.00. and te
Net and
(A) His estate will be Estat Net
 exempt from estate tax
because the net estate is
zero;
(B) His estate will
(C) His estate will be subject
Esta
to estate tax because net e
te
estate is P1,700,000.00;
(D) His estate will be
subject to estate tax
because net estate is
P800,000.00.
5 The Commissioner of (C) When the taxpayer offers to compromise the assessed tax based on TAX Com Com 2012
4 Internal Revenue may NOT financial incapacity to pay and he authorizes the Commissioner in writing to REMEDI pro pro
inquire into the bank look into his bank records; ES mise mis
deposits of a taxpayer, and e
except: According to Section 6(F), NIRC Abat
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) eme
(A) When the taxpayer files nt of
a fraudulent return; Taxe
s
(B) When the taxpayer
offers to compromise the
assessed tax based on
erroneous assessment;

(C) When the taxpayer

offers to compromise the
assessed tax based on
financial incapacity to pay
and he authorizes the
Commissioner in writing to
look into his bank records;

(D) When the taxpayer did

 not file his income tax
return for the year.
The Commissioner of
Internal Revenue issued a
BIR ruling to the effect that
the transaction is liable to
income tax and value added
tax. Upon receipt of the
ruling, a taxpayer does not
agree thereto. What is his
proper remedy?
(A) File a petition for review
Taxp
with the Court of Tax
ayer'
Appeals within thirty(30) (C) File an appeal to the Secretary of Finance within thirty(30) days from TAX Asse
5 s
days from receipt thereof; receipt thereof; According to Section 4, NIRC(UP LAW REMEDI ssm 2012
5 rem
(B) File a motion for COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ES ent
edie
reconsideration with the
s
Commissioner of Internal
Revenue;
(C) File an appeal to the
Secretary of Finance within
thirty(30) days from receipt
thereof;
(D) File an appeal to the
Secretary of Justice within
thirty(30) days from receipt
thereof.
On April 15, 2011, the
Taxp
Commissioner of Internal (D) The assessment notice is valid even if the taxpayer received, the same
ayer'
Revenue mailed by after the three-year period from the date of filing of the tax return. TAX Asse
5 s
registered mail the final REMEDI ssm 2012
6 rem
assessment notice and the According to Section 203, NIRC; BPI v. CIR, G.R. No. 139736, October 17, 2005 ES ent
edie
demand letter covering the (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
s
calendar year 2007 with the
 QC Post Office. Which
statement is correct?

(A) The assessment notice

is void because it was
mailed beyond the
prescriptive period;

(B) The assessment notice is

void because it was not
received by the taxpayer
within the three-year
period from the date of
filing of the tax return;

(C) The assessment notice is

void if the taxpayer can
show that the same was
received only after one(1)
month from date of
mailing;
(D) The assessment notice
is valid even if the taxpayer
received, the same after
the three-year period from
the date of filing of the tax
return.
A Preliminary Assessment
Taxp
Notice (PAN) is NOT
(B) When the finding for any deficiency tax is the result mathematical error in ayer'
required to be issued by the TAX Asse
5 the computation of the tax as appearing on the face of the return; s
BIR before issuing a Final REMEDI ssm 2012
7 According to Section 228, NIRC(UP LAW COMPLEX & PHILIPPINE ASSOCIATION rem
Assessment Notice (FAN) in ES ent
OF LAW SCHOOLS) edie
one of the following cases:
s
(A) When a taxpayer does
 not pay the 2010 deficiency
income tax liability on or
before July 15 of the year;
(B) When the finding for
any deficiency tax is the
result mathematical error in
the computation of the tax
as appearing on the face of
the return;
(C) When a discrepancy has
been determined between
the value added tax paid
and the amount due for the
year; (D) When the
amount of discrepancy
shown in the Letter Notice
is not paid within thirty (30)
days from date of receipt.
5 When a protest against the All the choices are correct. All the decisions on disputed assessments are Judicial Juris Juris 2012
8 deficiency income tax appealable to the CTA (in Division) irrespective of the amount (Section 3, RA Remedi dicti dicti
assessment was denied by 9282). es on on
the BIR Regional Director of (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) of of
Quezon City, the appeal to the the
the Court of Tax Appeals CTA CTA
must be filed by a taxpayer:

(A) If the amount of basic

tax assessed is P100,000.00
or more;
(B) If the amount of basic
tax assessed is P300,000.00
or more;
(C) If the amount of basic
tax assessed is P500,000.00
 or more;
(D) If the amount of basic
tax assessed is P1 Million or
more.
The taxpayer received an
assessment notice on April
15, 2011 and filed its
request for reinvestigation
against the assessment on
April 30, 2011. Additional
documentary evidence in
support of its protest was
submitted by it on June 30, Taxp
2011. If no denial of the (C) January 30, 2012; ayer'
TAX Asse
5 protest was received by the s
REMEDI ssm 2012
9 taxpayer, when is the last According to Section 228, NIRC rem
ES ent
day for the filing of its (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) edie
appeal to the CTA? s

(A) November 30, 2011;

(B) December 30, 2011;

(C) January 30, 2012;

(D) February 28, 2012.

The taxpayer received an
(A) August 30, 2011; According to Section 228, NIRC (nearest
assessment notice on April Taxp
answer but not a correct answer) [Note: The period to appeal is within 30 days
15, 2011 and filed its ayer'
from receipt of the final decision by the Commissioner. The decision was TAX Asse
6 request for reinvestigation s
received on July 30, 2011 so the last day to perfect an appeal with the CTA is REMEDI ssm 2012
0 against the assessment on rem
August 29, 2011. It is thus clear that the question did not provide for the ES ent
April 30, 2011. Additional edie
CORRECT answer. Hence, it should be treated as a bonus question.](UP LAW
documentary evidence in s
COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
support of its protest was
 submitted by it on June 30,
2011. (Using the same facts
in the immediately
preceding number, but)
assuming that the final
decision on the disputed
assessment was received by
the taxpayer on July 30,
2011, when is the last day
for filing of the appeal to
the CTA. (A) August 30,
2011;
(B) September 30, 2011;
(C) December 30, 2011;
(D) January 30, 2012.
Which court has jurisdiction
to determine if the warrant
of distraint and levy issued
by the BIR is valid and to
rule if the waiver of the Juris Juris
Statute of Limitations was (C) Court of Tax Appeals; dicti dicti
Judicial
6 validly effected? on on
Remedi 2012
1 (A) City Courts; According to Section 7, RA 9282 of of
es
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) the the
(B) Regional Trial Courts; CTA CTA

(C) Court of Tax Appeals;

(D) Court of Appeals.

Which statement below on (C) Compromise of a tax liability is available even during appeal, provided that Com
Com
compromise of tax liability prior leave of court is obtained; TAX pro
6 pro
is correct? REMEDI mise 2012
2 mis
(A) Compromise of a tax According to RR 30-2002 ES and
e
liability is available only at (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Abat
 the administrative level;

(B) Compromise of a tax

liability is available only
before trial at the CTA;

(C) Compromise of a tax eme

liability is available even nt of
during appeal, provided Taxe
that prior leave of court is s
obtained;
(D) Compromise of a tax
liability is still available
even after the court
decision has become final
and executory.
6 The submission of the (C) The taxpayer previously filed a request for reinvestigation with the BIR TAX Taxp Asse 2012
3 required documents within official; According to Section 228, NIRC; RCBC v. CIR(UP REMEDI ayer' ssm
sixty (60) days from the LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ES s ent
filing of the protest is rem
available only where: edie
(A) The taxpayer previously s
filed a Motion for
Reconsideration with the
BIR official;
(B) The taxpayer previously
filed a request for
reconsideration with the
BIR official;
(C) The taxpayer previously
filed a request for
reinvestigation with the BIR
official;
(D) The taxpayer previously
 filed an extension to file a
protest with the BIR official.
The prescriptive period for
the collection of the
deficiency tax assessment
will be tolled:

(A) If the taxpayer files a

request for reconsideration
with the Asst.
Commissioner;
(B) If the taxpayer files a request for reinvestigation that is approved by the Taxp
Commissioner of Internal Revenue; ayer'
(B) If the taxpayer files a TAX Coll
6 s
request for reinvestigation REMEDI ecti 2012
4 According to Section 223, NIRC; BPI v. Commissioner, G.R. No. 139736, rem
that is approved by the ES on
October 17, 2005 edie
Commissioner of Internal
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s
Revenue;
(C) If the taxpayer changes
his address in the
Philippines that is
communicated to the BIR
official;
(D) If a warrant of levy is
served upon the taxpayer‟s
real property in Manila
6 Which statement is (A) May be repeated, if necessary, until the full amount due, including all TAX Gov Ad 2012
5 correct? The collection of a expenses, is collected; REMEDI ern mini
deficiency tax assessment ES men stra
by distraint and levy: According to Section 217, NIRC t tive
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Rem rem
(A) May be repeated, if edie edie
necessary, until the full s s
amount due, including all
expenses, is collected;
 (B) Must be done
successively, first by
distraint and then by levy;
(C) Automatically covers the
bank deposits of a
delinquent taxpayer;

(D) May be done only once

during the taxable year.
The prescriptive period to
file a criminal action is:
(A) Ten (10) years from the
date of discovery of the
commission of fraud or
non-filing of tax return;
(B) Five (5) years from the
date of issuance of the final
assessment notice; (D) Five (5) years from the commission of the violation of the law, and if the Judic Judi
(C) Three (3) years from the same be not known at the time, from the discovery thereof and the institution Judicial ial cial
6
filing of the annual tax of judicial proceedings for its investigation and punishment. Remedi proc proc 2012
6
return; (D) Five (5) years According to Section 281, NIRC(UP LAW COMPLEX & PHILIPPINE ASSOCIATION es edur edu
from the commission of the OF LAW SCHOOLS) es res
violation of the law, and if
the same be not known at
the time, from the
discovery thereof and the
institution of judicial
proceedings for its
investigation and
punishment.
The accused‟s mere (C) Wilful blindness; Judicial Judic Judi
6
reliance on the Remedi ial cial 2012
7
representations made by According to CTA E.B. Criminal Case No. 006; People v. Kintanar, G.R. No. es proc proc
 his accountant, with
deliberate refusal or
avoidance to verify the
contents of his tax return
and to inquire on its
authenticity constitutes:
196340 edur edu
(A) Simple negligence; (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) es res

(B) Gross negligence;

(C) Wilful blindness;

(D) Excusable negligence.

6 The acquittal of the accused (C) The CTA will impose civil or tax liability only if there was a final assessment Judicial Judic Judi 2012
8 in the criminal action for notice issued by the BIR against the accused in accordance with the prescribed Remedi ial cial
the failure to file income procedures for issuing assessments, which was presented during the trial; or es proc proc
tax return and failure to (D) The CTA will impose civil or tax liability, provided that a computation of the edur edu
supply correct information tax liability is presented during the trial. es res
will have the following According to Republic vs. Patanao, L-22356, July 1, 1967; (Castro v. Collector
consequence: of Internal Revenue, L-12174, April 26, 1962).
(A) The CTA will (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
automatically exempt the
accused from any civil
liability;

(B) The CTA will still hold

the taxpayer liable for
deficiency income tax
liability in all cases, since
preponderance of evidence
is merely required for tax
cases;
 (C) The CTA will impose civil
or tax liability only if there
was a final assessment
notice issued by the BIR
against the accused in
accordance with the
prescribed procedures for
issuing assessments, which
was presented during the
trial;
(D) The CTA will impose civil
or tax liability, provided
that a computation of the
tax liability is presented
during the trial.
6 Which cases are appealable (B) Decisions of the Commissioner of Customs in cases involving liability for Judicial Juris Juris 2012
9 to the CTA? (A) customs duties, seizure, detention or release of property affected; According Remedi dicti dicti
Decisions of the Secretary to Section 7, RA 9282.(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW es on on
of Finance in cases SCHOOLS) of of
involving liability for the the
customs duties, seizure, CTA CTA
detention or release of
property affected;
(B) Decisions of the
Commissioner of Customs
in cases involving liability
for customs duties, seizure,
detention or release of
property affected;
(C) Decisions of the
Collector of Customs in
cases involving liability for
customs duties, seizure,
detention or release of
 property affected;
(D) Decisions of the BIR
Commissioner in cases
involving liability for
customs duties, seizure,
detention or release of
property affected.
7 The BIR issude in 2010 a Request for Reconsideration – plea for evaluation of assessment on the basis TAX Taxp Asse 2012
0 final assessment notice and of existing records without need of presentation of additional evidence. It REMEDI ayer' ssm
demand letter against X does not suspend the period to collect the deficiency tax. Request for ES s ent
Corporation covering Reinvestigation – plea for re-evaluation on the basis of newly discovered rem
deficiency income tas for evidence which are to be introduced for examination for the first time. It edie
the year 2008 in the suspends the prescriptive period to collect. s
amount of P10 Million. X (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
Corporation earlier
requested the advice of a
lawyer on whether or not it
should file a request for
reconsideration or a
request for reinvestigation.
The lawyer said it does not
matter wheteher the
protest files against the
assessment is a request for
reconsideration or a
request for reinvestigation,
because it has same
consequences or
implications.

What are the differences

between a request for
reconsideration and a
request for
 reinvestigation? (5%)
The BIR issude in 2010 a
final assessment notice and
demand letter against X
Corporation covering
deficiency income tas for
the year 2008 in the
amount of P10 Million. X
Corporation earlier
requested the advice of a
lawyer on whether or not it
should file a request for Taxp
reconsideration or a ayer'
No, in view of the aforesaid difference between Request for Reconsideration TAX Asse
7 request for reinvestigation. s
& Request for Reinvestigation. REMEDI ssm 2012
1 The lawyer said it does not rem
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ES ent
matter wheteher the edie
protest files against the s
assessment is a request for
reconsideration or a
request for reinvestigation,
because it has same
consequences or
implications.

Do you agree with the

advice of the lawyer?
Explain your answer (5%)
May the bank deposits – No. As a general rule, bank deposits of an individual taxpayer may not be Gov Ad
peso and foreign currency disclosed by a commercial bank to the Commissioner. As exceptions, the ern mini
of the an individual Commissioner is authorized to inquire into the bank deposits of: (1) a TAX men stra
7
taxpayer be disclosed by a decedent to determine his gross estate; and (2) any taxpayer who has filed an REMEDI t tive 2012
2
commercial bank to the application for compromise of his tax liability by reason of financial incapacity ES Rem rem
Commissioner of Internal to pay his tax liability. In case a taxpayer files an application to compromise edie edie
Revenue, in connection the payment of his tax liabilities on his claim that his financial position s s
 with a tax investigation demonstrates a clear inability to pay the tax assessed, his application shall not
being conducted by be considered unless and until he waives in writing his privilege under
revenue officials, without Republic Act No. 1405 (Bank Secrecy Law) or under other general or special
violating the relevant bank laws, and such waiver shall constitute the authority of the Commissioner to
secrecy laws? Explain your inquire into the bank deposits of the taxpayer (Section 6, NIRC).(UP LAW
answer. (5%) COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
In 2011, the Commissioner
of the U.S. Internal Revenue
Service (IRS) requested in
writing the Commissioner
of Internal Reveneu to get
the informatrion from a
bank in the Philippines, Yes. The Commissioner should agree to the request pursuant to the principle
Gov Ad
regarding the deposits of a of international comity. The Commissioner of Internal Revenue has the
ern mini
U.S. Citizen residing in the authority to inquire into bank deposit accounts and related information held
TAX men stra
7 Philippines, who is under by financial institutions of a specific taxpayer subject of a request for the
REMEDI t tive 2012
3 examiniation by the officials supply of tax information from a foreign tax authority pursuant to an
ES Rem rem
of the US IRS, pursuant to international convention or agreement to which the Philippines is a signatory
edie edie
the US-Philippine Tax or party of (Section 3, RA 10021).
s s
Treaty and othert existing (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
laws. Should the BIR
Commissioner agree to
obtain such informarion
from the bank and provide
the same to the IRS?
Explain your answer. (5%)
7 Is the bank secrecy law in No. Garnishment is an administrative remedy allowed by law to enforce a tax TAX Gov Ad 2012
4 the Philippines violated liability. Bank accounts shall be garnished by serving a warrant of garnishment REMEDI ern mini
when the BIR issues a upon the taxpayer and upon the president, manager, treasurer or other ES men stra
Warrant of Garnishment responsible officer of the bank. Upon receipt of the warrant of garnishment, t tive
directed against a domestic the bank shall turn over to the Commissioner so much of the bank accounts as Rem rem
bank, requiring it not to may be sufficient to satisfy the claim of the Government (Section 208, NIRC). edie edie
allow any withdrawal from (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s s
any existing bank deposit of
 he delinquent taxpayer
mentioned in the Warrant
and to freeze the same until
the tax delinquency of said
taxpayer is settled with the
BIR? Explain your answer.
(5%)
7 In the examination NO. The Petition for Review should not be denied. The case is an exception to TAX Taxp Asse 2012
5 conducted by the revenue the rule on exhaustion of administrative remedies. The BIR is estopped from REMEDI ayer' ssm
officials against the claiming that the filing of the Petition for Review is premature because the ES s ent
corporate taxpayer in 2010, taxpayer failed to exhaust all administrative remedies. The statement of the rem
the BIR issued a final BIR in its Final Assessment Notice and Demand Letter led the taxpayer to edie
assessment notice and conclude that only a final judicial ruling in his favor would be accepted by the s
demand letter which states: BIR. The taxpayer cannot be blamed for not filing a protest against the Formal
"It is requested that the Letter of Demand with Assessment Notices since the language used and the
above deficiency tax be tenor of the demand letter indicate that it is the final decision of the
paid immediately upon respondent on the matter. The CIR should indicate, in a clear and unequivocal
receipt hereof, inclusive of language, whether his action on a disputed assessment constitutes his final
penalties incident to determination thereon in order for the taxpayer concerned to determine
delinquency. This is our when his or her right to appeal to the tax court accrues. Although there was
final decision based on no direct reference for the taxpayer to bring the matter directly to the CTA, it
investigation. If you cannot be denied that the word “appeal” under prevailing tax laws refers to
disagree, you may appeal the filing of a Petition for Review with the CTA (Allied Bank vs. CIR, G.R. No.
this final decision within 175097, February 5, 2010).(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF
thirty (30) days from receipt LAW SCHOOLS)
hereof, otherwise said
deficiency tax assessment
shall become final,
executory and
demandable." The
assessment was
immediately appealed by
the taxpayer to the Court of
Tax Appeals, without filing
 its protest against the
assessment and without a
denial thereof by the BIR. If
you were the judge, would
your deny the petition for
review filed by the taxpayer
and consider the case as
prematurely filed? Explain
your answer (5%)
Explain the following In taxation, the taxpayer becomes criminally liable because of a civil liability.
statements: While he may be acquitted on the criminal case, his acquittal could not
operate to discharge him from the duty to pay tax, since that duty is imposed
Judic Judi
The acquittal of the by statute prior to and independent of any attempt on the taxpayer to evade
Judicial ial cial
7 taxpayer in a criminal payment. The obligation to pay the tax is not a mere consequence of the
Remedi proc proc 2012
6 action under the Tax Code felonious acts charged in the information, nor is a mere civil liability derived
es edur edu
does not necessarily result from crime that would be wiped out by the declaration that the criminal acts
es res
in a exeoneration of said charged did not exist (Castro v. Collector of Internal Revenue, L-12174, April
taxpayer from his civil 26, 1962).
liability to pay taxes. (3%) (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
Explain the following
statements:

Should the accused be Yes. If the failure to file tax return or to supply correct information resulted to
Stat
found guilty beyond unpaid taxes the amount of which is proven during trial, the CTA shall not only
utor
reasonable doubt for impose the criminal penalty but must likewise order the payment of the civil
y Civil
violation of Section 255 of liability (Section 205(b), NIRC). As a matter of fact, it is well-recognized that in TAX
7 offe Pen
the Tax Code for failure to the case of failure to file a return, a proceeding in court for the collection of REMEDI 2012
7 nses altie
file tax return or to to the tax may be filed without the need of an assessment, which recognizes that ES
and s
spply correct information), the civil liability of a taxpayer maybe established without the need of an
pena
the imposition of the civil assessment (Section 222(a), NIRC).
lties
liability by the CTA should (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
be automatic and no
assessment notice from
the BIR is necessary? (2%)
 Which statement is
WRONG?
(A) The power of taxation
may be exercised by the
Inhe
government, its political Scop
rent
subdivisions, and public e
General Limi
utilities; (A) The power of taxation may be exercised by the government, its political and
Principl tati
7 (B) Generally, there is no subdivisions, and public utilities; According to Inherent Limit
es of ons 2012
8 limit on the amount of tax Powers of the State(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW ation
Taxatio of
that may be imposed; SCHOOLS) of
n Tax
(C) The money contributed Taxa
atio
as tax becomes part of the tion
n
public funds;
(D) The power of tax is
subject to certain
constitutional limitations.
7 Which statement below (B) The underlying basis of taxation is government necessity, for without General Theo Life 2012
9 expresses the lifeblood taxation, a government can neither exist nor endure; Principl ry bloo
theory? es of and d
(A) The assessed taxes must Explanation: Taxes are the lifeblood of the government, for without taxes, the Taxatio Basis the
be enforced by the government can neither exist nor endure. A principal attribute of sovereignty, n of ory
government. the exercise of taxing power derives its source from the very existence of the Taxa
(B) The underlying basis of state whose social contract with its citizens obliges it to promote public tion
taxation is government interest and common good. The theory behind the exercise of the power to
necessity, for without tax emanates from necessity; without taxes, government cannot fulfil its
taxation, a government can mandate of promoting the general welfare and well-being of the people.
neither exist nor endure; (National Power Corporation vs. City of Cabanatuan, G.R. No. 149110 April 9,
(C) Taxation is an arbitrary 2003).
method of exaction by (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
those who are in the seat of
power;

(D) The power of taxation is

an inherent power of the
 sovereign to impose
burdens upon subjects and
objects “within its
jurisdiction for the purpose
of raising revenues”.
8 Bank A deposited money (A) There is double taxation because two taxes - income tax and gross receipts General Doct Dou 2012
0 with Bank B which earns tax are imposed on the interest incomes described above, and double taxation Principl rines ble
interest that is subjected to is prohibited under the 1987 Constitution. Explanation: There is no double es of in taxa
the 20% final withholding taxation if the law imposes two different taxes on the same income, business Taxatio Taxa tion
tax. At the same time, Bank or property. First, the taxes herein are imposed on two different subject n tion
A is subjected to the 5% matters. The subject matter of the FWT [Final Withholding Tax] is the passive
gross receipts tax on its income generated in the form of interest on deposits and yield on deposit
interest income on loan substitutes, while the subject matter of the GRT [Gross Receipts Tax] is the
transactions to customers. privilege of engaging in the business of banking. Second, although both taxes
Which statement below are national in scope because they are imposed by the same taxing authority -
INCORRECTLY describes the the national government under the Tax Code - and operate within the same
transaction?(A) There is Philippine jurisdiction for the same purpose of raising revenues, the taxing
double taxation because periods they affect are different. The FWT is deducted and withheld as soon as
two taxes - income tax and the income is earned, and is paid after every calendar quarter in which it is
gross receipts tax are earned. On the other hand, the GRT is neither deducted nor withheld, but is
imposed on the interest paid only after every taxable quarter in which it is earned. (Commissioner of
incomes described above, Internal Revenue vs. BPI, G.R. No. 147375 dated June 26, 2006)(UP LAW
and double taxation is COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
prohibited under the 1987
Constitution. (B) There is
no double taxation because
the first tax is income tax,
while the second tax is
business tax;(C) There is no
double taxation because
the income tax is on the
interest income of Bank A
on its deposits with Bank B
(passive income), while the
 gross receipts tax is on the
interest Income received by
Bank A from loans to its
debtor-customers (active
income); (D) Income tax
on interest income of
deposits of Bank A is a
direct tax, while GRT on
interest income on loan
transaction is an indirect
tax.
8 Which of the following (D) A memorandum circular promulgated by the CIR that imposes penalty for TAX Taxp Asse 2012
1 statements is NOT correct? violations of certain rules needed not be published in a newspaper of general REMEDI ayer' ssm
(A) In case of doubt, circulation or official gazette because it has the force and effect of law. ES s ent
statutes levying taxes are rem
construed strictly against edie
the government; Explanation: A revenue memorandum circular shall not begin to be operative s
(B) The construction of a until after due notice thereof may be fairly presumed (Commissioner of
statute made by his Internal Revenue vs. Philippine Airlines, G.R. No. 180066 dated July 8, 2009).
predecessors is not binding (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
upon the successor, if
thereafter he becomes
satisfied that a different
construction should be
given;
(C) The reversal of a ruling
shall not generally be given
retroactive application, if
said reversal will be
prejudicial to the taxpayer;
(D) A memorandum circular
promulgated by the CIR
that imposes penalty for
violations of certain rules
 needed not be published in
a newspaper of general
circulation or official
gazette because it has the
force and effect of law.
The Philippines adopted the
semi-global tax system,
which means that:
(A) All taxable incomes,
regardless of the nature of
income, are added together
to arrive at gross income,
and all allowable taxable
income;
(B) All incomes subject to
final withholding taxes are
Sch
liable to income tax under (B) All incomes subject to final withholding taxes are liable to income tax Inco
edul
the schedular tax system, under the schedular tax system, while all ordinary income as well as income Income me
8 ar
while all ordinary income as not subject to final withholding taxes are liable to income tax under’ the, Taxatio tax 2012
2 tax
well as income not subject global tax system; According to General Principles of Taxation(UP LAW n syste
syst
to final withholding taxes COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) m
em
are liable to income tax
under’ the, global tax
system; (C) All
taxable incomes are subject
to final withholding taxes
under the schedular tax
system;
(D) All taxable incomes
from sources within and
without the Philippines are
liable to income tax.
Mr. Z made an importation (A) Mr. Z committed smuggling. Tariff Impo Smu
1 2013
which he declared at the and rtati ggli
 Bureau of Customs (BOC) as
"Used Truck Replacement
Parts". Upon investigation,
the container vans
contained 15 units of
Porsche and Ferrari cars.
Characterize Mr. Z's action.
on in
(1%)
viola
(A) Mr. Z committed
tion
smuggling.
of
According to Section 3601, TCCP; Rieta v. People of the Philippines, 436 SCRA
Custom tax
(B) Mr. Z did not commit 273 ng
s credi
smuggling because he (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
t
submitted his shipment to
certi
BOC examination.
ficat
e
(C) Mr. Z only made a
misdeclaration, but did not
commit smuggling.
(D) Mr. Z did not commit
smuggling because the
shipment has not left the
customs area.
On October 15, 2005, ABC No. The Bureau of Customs (BOC) has lost its right to assess deficiency
Corp. imported 1,000 kilos customs duties and VAT. The imported steel ingots in 2005 have been entered
of steel ingots and paid and the customs duties thereon had been paid by thereby making the
customs duties and VAT to liquidation of the importation final and conclusive upon all parties after the
Tariff
the Bureau of Customs on expiration of three (3) years from the date of final payment of duties and Rem Tax
and
2 the importation. On taxes (Sec 1603, TCC, as amended by RA 9135). [Note: Insofar as VAT on edie pay 2013
Custom
February 17, 2009, the importation is concerned, the underpayment will be automatically cured when s er
s
Bureau of Customs, citing these are credited against the output tax due upon sale by the imported when
provisions of the Tariff and the VAT return is filed. Be that as it may, an assessment for deficiency VAT can
Customs Code on post- only be made by the BIR (not by BOC), VAT being an internal revenue tax,
audit, investigated and within three (3) years from the last day prescribed by law for filing of the VAT
 assessed ABC Corp. for
deficiency customs duties
return. (Sec 203, NIRC)].
and VAT.
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
Is the Bureau of Customs
correct? (7%)
3 Pheleco is a power (B) The ordinance is valid as a legitimate exercise of police power to regulate Local Local pow 2013
generation and distribution electric poles. According to Section 129, RA 7160(UP LAW COMPLEX Govern Taxi er
company operating mainly & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ment ng to
from the City of Taguig. It Taxatio auth crea
owns electric poles which it n ority te
also rents out to other reve
companies that use poles nue
such as telephone and s
cable companies. Taguig exer
passed an ordinance cise
imposing a fee equivalent thro
to 1% of the annual rental ugh
for these poles. Pheleco LGU
questioned 'the legality of s
the ordinance on the
ground that it imposes an
income tax which local
government units (LGUs)
are prohibited from
imposing. Rule on the
validity of the ordinance.
(1%)
(A) The ordinance is void;
the fee is based on rental
income and is therefore a
tax on income.
(B) The ordinance is valid as
a legitimate exercise of
police power to regulate
 electric poles.
(C) The ordinance is void;
1% of annual rental is
excessive and oppressive.
(D) The ordinance is valid;
an LGU may impose a tax
on income.
ABC Corporation is
registered as a holding
company and has an office
in the City of Makati. It has
no actual business No. the corporation cannot be considered as a contractor because it does not
operations. It invested in render services for others for a fee. A contractor is one whose activity consists
Do
another company and its essentially in the sale of all kinds of services for a fee, regardless of whether or
Kind mes
earnings are limited to not the performance of the service calls for the exercise or use of the physical
Income s of tic
dividends from this or mental faculties of such contractor or its employees. To be considered as a
4 Taxatio taxp Cor 2013
investment, interests on its contractor, the corporation must derive income from doing active business of
n ayer por
bank deposits, and foreign selling services and not from deriving purely passive income. Accordingly, a
s atio
exchange gains from its mere holding company cannot be assessed by the City of Makati as a
ns
foreign currency account. contractor (Sec 131 (h), LGC).
The City of Makati assessed (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
ABC Corporation as a
contractor or one that sells
services for a fee. Is the City
of Makati correct? (6%)
Atty. Gambino is a partner No. The BIR is wrong in disallowing the deductions claimed by Atty. Gambino. Excl
in a general professional It appears that the general professional partnership (GPP) claimed itemized usio
partnership. The deductions from its gross revenues in arriving at its distributable net income. ns
partnership computes its The share of a partner in the net income of the GPP must be reported by him Income Inco fro
5 gross revenues, claims as part of his gross income from practice of profession and he is allowed to Taxatio me m 2013
deductions allowed under claim further deductions which are reasonable, ordinary and necessary in the n Tax Gro
the Tax Code, and practice of profession and were not claimed by the partnership in computing ss
distributes the net income its net income (Sec 26, NIRC; RR No. 16-2008; 2-2010). Inco
to the partners, including Consequently, these partners may claim deductions under Section 34 of the me
 Atty. Gambino, in
accordance with its articles
of partnership.
In filing his own income tax
return, Atty. Gambino
claimed deductions that the
partnership did not claim, NIRC from their gross inome.
such as purchase of law (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
books, entertainment
expenses, car insurance and
car depreciation. The BIR
disallowed the deductions.

Was the BIR correct? (6%)

6 In 2000, Mr. Belen bought a Since the planned sale involves a real property classified as a capital asset, the Income Inco Tax 2013
residential house and lot material considerations to take into account to compute the income tax are: Taxatio me atio
for P1,000,000. He used the 1. The current fair market value of the property to be sold. The current fair n Tax n of
property as his and his market value is the higher between the zonal value and the fair market value resi
family's principal residence. per tax declaration. 2. The gross selling price of the property. 3. Determination den
It is now year 2013 and he of the tax base which is the higher between the gross selling price and the t
is thinking of selling the current fair market of the property. The income tax is computed as 6% of the citiz
property to buy a new one. tax base which is in the nature of a final capital gains tax. (Sec 24 (D)(1), NIRC). ens,
He seeks your advice on However, since the property to be sold is a principal residence and the non
how much income tax he purpose is to buy a new one, I will advise Mr. Belen that the sale can be -
would pay if he sells the exempt from 6% capital gains tax if he is willing to comply with the following resi
property. The total zonal conditions: a. He must utilize the proceeds of sale acquiring a new principal den
value of the property residence within 18 months from the date of disposition; b. He should notify t
is P5,000,000 and the fair the Commissioner of his intention to avail of the exemption within 30 days citiz
market value per the tax from date of sale; c. He should open an escrow account with a bank and ens,
declaration is P2,500,000. deposit the 6% capital gains tax due on the sale. If he complies with the and
He intends to sell it utilization requirement he will be entitled to get back his deposit; otherwise, resi
forP6,000,000. What the deposit will be applied against the capital gains tax due. (Sec 24 (D)(2), den
material considerations will NIRC)(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) t
you take into account in alie
 computing the income tax?
Please explain the legal
ns
relevance of each of these
considerations. (7%)
ABC Corp. was dissolved
and liquidating dividends
were declared and paid to
the stockholders. What tax
consequence follows? (1%)
(A) ABC Corp. should Sour
deduct a final tax of 10% ces
from the dividends. (B) The stockholders should declare their gain from their investment and pay of
Gros
(B) The stockholders should income tax at the ordinary rates. Income Inco
s
7 declare their gain from Taxatio me 2013
Inco
their investment and pay According to Section 39, BIR Ruling 39-02, Nov. 11, 2002 n Subj
me
income tax at the ordinary (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ect
rates. to
(C) The dividends are tax
exempt from tax.

(D) ABC Corp. should

withhold a 10% creditable
tax.
MGC Corp. secured an
income tax holiday for 5 Sour
years as a pioneer industry. ces
On the fourth year of the of
(A) The dividends are taxable; the tax exemption of MGC Corp. does not Gros
tax holiday, MGC Corp. Income inco
extend to its stockholders. According to Sunio v. NLRC, G.R. No. s
8 declared and paid cash Taxatio me 2013
57767, Jan. 31, 1984(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW Inco
dividends to its n subj
SCHOOLS) me
stockholders, all of whom ect
are individuals. Are the to
dividends taxable? (1%) tax
(A) The dividends are
 taxable; the tax exemption
of MGC Corp. does not
extend to its stockholders.
(B) The dividends are tax
exempt because of MGC
Corp.'s income tax holiday.
(C) The dividends are
taxable if they exceed 50%
of MGC Corp.'s retained
earnings.
(D) The dividends are
exempt if paid before the
end of MGC Corp.'s fiscal
year.
9 In 2010, Mr. Platon sent his (B) Yes, income is income regardless of the source. Income Gros Sour 2013
sister Helen $1 ,000 via a Taxatio s ces
telegraphic transfer According to Javier v. Commissioner, 199 SCRA 824, G.R. No. 78953 n Inco of
through the Bank of PI. The (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) me inco
bank's remittance clerk me
made a mistake and subj
credited Helen with ect
$1,000,000 which she to
promptly withdrew. The tax
bank demanded the return
of the mistakenly credited
excess, but Helen refused.
The BIR entered the picture
and investigated Helen.
Would the BIR be correct if
it determines that Helen
earned taxable income
under these facts? (1%)

(A) No, she had no income

 because she had no right to
the mistakenly credited
funds.

(B) Yes, income is income

regardless of the source.

(C) No, it was not her fault

that the funds in excess of
$1,000 were credited to
her.

(D) No, the funds in excess

of$1,000 were in effect
donated to her.
1 PRT Corp. purchased a (B) There was a taxable fringe benefit since the stay at the house was for free Income Gros Sour 2013
0 residential house and lot First, the company president is not a rank-and-file employee. Thus, the Taxatio s ces
with a swimming pool in an housing benefit is subject to fringe benefit tax in pursuant to Section 33 of the n Inco of
upscale subdivision and NIRC and Section 2.33(A) of the RR No. 03-98. Although the housing benefit to me inco
required the company the President may be for the convenience of the employer (PRT Corp.) or me
president to stay there necessary to its business. still. it also inured to the benefot of the President as subj
without paying rent; it his stay thereis is for free. RR No.03-98 also provides for the guidelines and ect
reasoned out that the valuation of fringe benefits for purposes of computing the portion which shall to
company president must be subject to fringe benefits tax in cases where the fringe benefits entail joint tax
maintain a certain image benefits to the employer and employee. Thus, there was a taxable fringe
and be able to entertain benefit.(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
guests at the house to
promote the company's
business. The company
president declared that
because they are childless,
he and his wife could very
well live in a smaller house.
Was there a taxable fringe
 benefit? (1%) (A) There
was no taxable fringe
benefit since it was for the
convenience of the
employer and was
necessary for its business.
(B) There was a taxable
fringe benefit since the stay
at the house was for free.
(C) There was a taxable
fringe benefit because the
house was very luxurious.
(D) There was no taxable
fringe benefit because the
company president was
only required to stay there
and did not demand free
housing.
1 Aleta sued Boboy for (D) She had no taxable income since moral damages are compensatory. Income Inco Inco 2013
1 breach of promise to marry. Taxatio me me
Boboy lost the case and According to Section 32 (B)(4), NIRC n Tax
duly paid the court's award (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
that included, among
others, Pl00,000 as moral
damages for the mental
anguish Aleta suffered. Did
Aleta earn a taxable
income? (1%)
(A) She had a taxable
income of P100,000 since
income is income from
whatever source.
(B) She had no taxable
income because it was a
 donation. (C)
She had taxable income
since she made a profit.
(D) She had no taxable
income since moral
damages are
compensatory.
1 Mr. A was preparing his (A) Mr. A is not guilty of fraud as he simply followed the advice of his lawyer. Income Gros Sour 2013
2 income tax return and had He only relied in good faith on the expertise of his lawyer in not declaring his Taxatio s ces
some doubt on whether a income for that year. According to CIR v. CA, G.R. n Inco of
commission he earned No. 119322, June 4, 1996(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF me inco
should be declared for the LAW SCHOOLS) me
current year or for the subj
succeeding year. He sought ect
the opinion of his lawyer to
who advised him to report tax
the commission in the
succeeding year. He heeded
his lawyer's advice and
reported the commission in
the succeeding year. The
lawyer's advice turned out
to be wrong; in Mr. A's
petition against the BIR
assessment, the court ruled
against Mr. A. Is Mr. A
guilty of fraud? (1%)
(A) Mr. A is not guilty of
fraud as he simply followed
the advice of his lawyer.
(B) Mr. A is guilty of fraud;
he deliberately did not
report the commission in
the current year when he
 should have done so.
(C) Mr. A's lawyer should
pay the tax for giving the
wrong advice. (D) Mr. A is
guilty for failing to consult
his accountant.
1 XYZ Law Offices, a law For income tax purposes, the compensation for services is part of the gross Income Inco Wh 2013
3 partnership in the income of the law partnership. From its total gross income derived within and Taxatio me en
Philippines and a VAT- without, it has to compute its net income in the same manner as a n inco
registered taxpayer, corporation. The net income of the partnership whether distributed or not will me
received a query by e-mail be declared by the partners as part of their gross income who are to pay the is
from Gainsburg income tax thereon in their individual capacity. (Sec 26, NIRC) taxa
Corporation, a corporation (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ble
organized under the laws of
Delaware, but the e-mail
came from California where
Gainsburg has an office.
Gainsburg has no office in
the Philippines and does no
business in the Philippines.
XYZ Law Offices rendered
its opinion on the query
and billed Gainsburg
US$1,000 for the opinion.
Gainsburg remitted its
payment through Citibank
which converted the
remitted US$1 ,000 to
pesos and deposited the
converted amount in the
XYZ Law Offices account.

What are the tax

implications of the payment
 to XYZ Law Offices in terms
of VAT and income taxes?
(7%)
Ren
In the settlement of the
unci
estate of Mr. Barbera who
The BIR is correct that there was taxable gift only insofar as the renunciation atio
died intestate, his wife
of the share of the wife in the conjugal property is concerned. This is a n of
renounced her inheritance
transfer if property without consideration which takes effect during the the
and her share of the Pers
lifetime of the transferor/wife and this qualifies as a taxable gift. (RR Mo. 2- Shar
1 conjugal property in favor Donor’s on
2003). But the renunciation of the wife‟s share it the inheritance e of 2013
4 of their children. The BIR Tax liabl
during the settlement of the estate is not a taxable gift considering that the the
determined that there was e
property is automatically transferred to the other heirs by operation of law Surv
a taxable gift and thus
due to her repudiation of her inheritance. (BIR Ruling DA No. 333-07) ivin
assessed Mrs. Barbera as a
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) g
donor. Was the BIR
Spo
correct? (7%)
use
1 The spouses Jun and Elvira (D) The CIR is correct; there was animus donandi since the children had no Donor’s Requ Inte 2013
5 Sandoval purchased a piece financial capacity to be co-purchasers. According to Spouse Tax isites nt
of land for P5,000,000 and Evono v. Department of Finance, et. al., CTA EB Case No. 705, June 4, 2012(UP of a to
included their two (2) LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) valid Don
minor children as co- dona ate
purchasers in the Deed of tion
Absolute Sale. The
Commissioner of Internal
Revenue (CIR) ruled that
there was an implied
donation and assessed
donors' taxes against the
spouses. Rule on the CIR's
action. (1%) (A) The CIR
is wrong; a donation must
be express.
(B) The CIR is wrong;
financial capacity is not a
 requirement for a valid
sale.
(C) The CIR is correct; the
amount involved is huge
and ultimately ends up with
the children.
(D) The CIR is correct; there
was animus donandi since
the children had no
financial capacity to be co-
purchasers.
Mr. Agustin, 75 years old
and suffering from an
incurable disease, decided
to sell for valuable and
Item Tran
sufficient consideration a
s to sfer
house and lot to his son. He No. The house and lot were not transferred in contemplation of death
be in
died one year later. In the therefore, these properties should not form part of the decedent’s gross
inclu Con
settlement of Mr. Agustin's estate. To qualify as a transfer in contemplation of death, the transfer must be
1 Estate ded tem
estate, the BIR argued that either without consideration or for insufficient consideration. Since the house 2013
6 Tax in plati
the house and lot were and lot were sold for valuable and sufficient consideration, there is no transfer
gros on
transferred in in contemplation of death for estate tax purposes. (Sec 85 (B), NIRC).
s of
contemplation of death and (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
estat Dea
should therefore form part
e th
of the gross estate for
estate tax purposes.

Is the BIR correct? (7%)

Mr. Mayuga donated his Item
Rev
residential house and lot to (A) The property will form part of Mr. Mayuga's gross estate when he dies. s to
oca
1 his son and duly paid the Estate be
ble 2013
7 donor's tax. In the Deed of According to Section 85(B), NIRC Tax inclu
Tran
Donation, Mr. Mayuga (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) ded
sfer
expressly reserved for in
 himself the usufruct over
the property for as long as
he lived. Describe the
donated property from the
taxation perspective. (1%)
(A) The property will form
part of Mr. Mayuga's gross
estate when he dies.

(B) The property will not

form part of Mr. Mayuga's gros
gross estate when he dies s
because he paid the estat
donor's tax. e

(C) The property will form

part of Mr. Mayuga's gross
estate because he died
soon after the donation.

(D) The property will not

form part of Mr. Mayuga's
gross estate because it is no
longer his.
1 Mr. Agustin, 75 years old No. The house and lot were not transferred in contemplation of death Estate Item Tran 2013
8 and suffering from an therefore, these properties should not form part of the decedent’s gross Tax s to sfer
incurable disease, decided estate. To qualify as a transfer in contemplation of death, the transfer must be be in
to sell for valuable and either without consideration or for insufficient consideration. Since the house inclu Con
sufficient consideration a and lot were sold for valuable and sufficient consideration, there is no transfer ded tem
house and lot to his son. He in contemplation of death for estate tax purposes. (Sec 85 (B), NIRC). (UP LAW in plati
died one year later. In the COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) gros on
settlement of Mr. Agustin's s of
estate, the BIR argued that estat Dea
the house and lot were e th
 transferred in
contemplation of death and
should therefore form part
of the gross estate for
estate tax purposes.
Is the BIR correct? (7%)
1 Mr. Mayuga donated his (A) The property will form part of Mr. Mayuga's gross estate when he dies. Estate Item Rev 2013
9 residential house and lot to Tax s to oca
his son and duly paid the According to Section 85(B), NIRC be ble
donor's tax. In the Deed of (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) inclu Tran
Donation, Mr. Mayuga ded sfer
expressly reserved for in
himself the usufruct over gros
the property for as long as s
he lived. Describe the estat
donated property from the e
taxation perspective. (1%)
(A) The property will form
part of Mr. Mayuga's gross
estate when he dies.

(B) The property will not

form part of Mr. Mayuga's
gross estate when he dies
because he paid the
donor's tax.

(C) The property will form

part of Mr. Mayuga's gross
estate because he died
soon after the donation.

(D) The property will not

form part of Mr. Mayuga's
 gross estate because it is no
longer his.
Mr. Agustin, 75 years old
and suffering from an
incurable disease, decided
to sell for valuable and
Item Tran
sufficient consideration a
s to sfer
house and lot to his son. He No. The house and lot were not transferred in contemplation of death
be in
died one year later. In the therefore, these properties should not form part of the decedent’s gross
inclu Con
settlement of Mr. Agustin's estate. To qualify as a transfer in contemplation of death, the transfer must be
2 Estate ded tem
estate, the BIR argued that either without consideration or for insufficient consideration. Since the house 2013
0 Tax in plati
the house and lot were and lot were sold for valuable and sufficient consideration, there is no transfer
gros on
transferred in in contemplation of death for estate tax purposes. (Sec 85 (B), NIRC).
s of
contemplation of death and (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
estat Dea
should therefore form part
e th
of the gross estate for
estate tax purposes.

Is the BIR correct? (7%)

2 Mr. Mayuga donated his (A) The property will form part of Mr. Mayuga's gross estate when he dies. Estate Item Rev 2013
1 residential house and lot to According to Section 85(B), NIRC(UP LAW COMPLEX & PHILIPPINE Tax s to oca
his son and duly paid the ASSOCIATION OF LAW SCHOOLS) be ble
donor's tax. In the Deed of inclu Tran
Donation, Mr. Mayuga ded sfer
expressly reserved for in
himself the usufruct over gros
the property for as long as s
he lived. Describe the estat
donated property from the e
taxation perspective. (1%)
(A) The property will form
part of Mr. Mayuga's gross
estate when he dies.
(B) The property will not
 form part of Mr. Mayuga's
gross estate when he dies
because he paid the
donor's tax.
(C) The property will form
part of Mr. Mayuga's gross
estate because he died
soon after the donation.
(D) The property will not
form part of Mr. Mayuga's
gross estate because it is no
longer his.
Mr. Agustin, 75 years old
and suffering from an
incurable disease, decided
to sell for valuable and
Item Tran
sufficient consideration a
s to sfer
house and lot to his son. He No. The house and lot were not transferred in contemplation of death
be in
died one year later. In the therefore, these properties should not form part of the decedent’s gross
inclu Con
settlement of Mr. Agustin's estate. To qualify as a transfer in contemplation of death, the transfer must be
2 Estate ded tem
estate, the BIR argued that either without consideration or for insufficient consideration. Since the house 2013
2 Tax in plati
the house and lot were and lot were sold for valuable and sufficient consideration, there is no transfer
gros on
transferred in in contemplation of death for estate tax purposes. (Sec 85 (B), NIRC).
s of
contemplation of death and (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
estat Dea
should therefore form part
e th
of the gross estate for
estate tax purposes.

Is the BIR correct? (7%)

Mr. Mayuga donated his Item Rev
(A) The property will form part of Mr. Mayuga's gross estate when he dies.
residential house and lot to s to oca
2 Estate
his son and duly paid the be ble 2013
3 According to Section 85(B), NIRC Tax
donor's tax. In the Deed of inclu Tran
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
Donation, Mr. Mayuga ded sfer
 expressly reserved for
himself the usufruct over
the property for as long as
he lived. Describe the
donated property from the
taxation perspective. (1%)
(A) The property will form
part of Mr. Mayuga's gross
estate when he dies.

(B) The property will not in

form part of Mr. Mayuga's gros
gross estate when he dies s
because he paid the estat
donor's tax. e

(C) The property will form

part of Mr. Mayuga's gross
estate because he died
soon after the donation.

(D) The property will not

form part of Mr. Mayuga's
gross estate because it is no
longer his.
2 In its final adjustment No. The claim for refund will not prosper. While the law gives the taxpayer an TAX Taxp Refu 2013
4 return for the 2010 taxable option to whether carry-over or claim as refund the excess tax credits shown REMEDI ayer' nd
year, ABC Corp. had excess on its final adjustment return, once the option to carry-over has been made, ES s
tax credits arising from its such option shall be considered irrevocable for that taxable period and no rem
over-withholding of income application for cash refund or issuance of a tax credit certificate shall be edie
payments. It opted to carry allowed. (Sec 76, NIRC; CIR v. PL Management International Phils., Inc., April 4, s
over the excess tax credits 2011, 647 SCRA 72 (2011) G.R. No. 160949).(UP LAW COMPLEX & PHILIPPINE
to the following year. ASSOCIATION OF LAW SCHOOLS)
Subsequently, ABC Corp.
 changed its mind and
applied for a refund of the
excess tax credits.
Will the claim for refund
prosper? (6%)
In 2010, pursuant to a
Letter of Authority (LA)
issued by the Regional
Director, Mr. Abcede was
assessed deficiency income
taxes by the BIR for the The contention of Mr. Abcede is not tenable. While the general rule is to the
year 2009. He paid the effect that for income tax purposes, a taxpayer must be subject to
Taxp
deficiency. In 2011, Mr. examination and inspection by the internal revenue officers only once in a
ayer'
Abcede received another LA taxable year, this will not apply if there is fraud, irregularity or mistakes as TAX Asse
2 s
for the same year 2009, this determined by the Commissioner. In the instant case, what triggered the REMEDI ssm 2013
5 rem
time from the National second examination is the findings by the BIR that Mr. Abcede’s 2009 return ES ent
edie
Investigation Division, on was fraudulent, accordingly, the examination is legally justified. (Sec 235,
s
the ground that Mr. NIRC)
Abcede's 2009 return was (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
fraudulent. Mr. Abcede
contested the LA on the
ground that he can only be
investigated once in a
taxable year. Decide. (7%)
You are the retained tax I will advise my client not to accept the settlement proposal but instead pay
counsel of ABC Corp. Your the entire amount of tax that is legally due to the government. On the tax
client informed you that aspect, I will tell my client that a proposed assessment covering deficiency Taxp
they have been directly taxes which are legally due must be fully paid to exonerate the taxpayer from ayer'
TAX Asse
2 approached with a proposal further liabilities. The unwarranted reduction of the proposed assessment into s
REMEDI ssm 2013
6 by a BIR insider (i.e., a half and the payment thereof will not close the case but can be re-opened rem
ES ent
middle rank BIR official) on anytime within ten years from discovery so as to collect the correct amount of edie
the tax matter they have taxes from ABC Corp. The act of deliberately paying an amount of tax that is s
referred to you for less than what is known by my client to be legally due through a cause of
handling. The BIR insider's action that is unlawful is considered as tax evasion. I will advise my client that
 proposal is to settle the conniving with a BIR insider to reduce the proposed assessment for a fee us
matter by significantly unlawful which can expose the officers of the corporation to criminal liability.
reducing the assessment, Likewise, the payment to be made to the BIR official of 50% of the savings
but he will get 50% of the constitutes direct bribery punishable under the Revised Penal Code. Insofar as
savings arising from the the BIR officer is concerned he will also be a principal to direct bribery and to
reduced assessment. the criminal violation penalized under Section 269 of the Tax Code. On ethical
grounds, agreeing to the settlement scheme being proposed by the BIR insider
What tax, criminal and is agreeing to the perpetration of a dishonest act. Since taxation is symbiotic
ethical considerations will relationship, fair dealing on both sides is of paramount importance. I will
you take into account in remind my client that taxpayers owe honesty to government just as
giving your advice? Explain government owes fairness to taxpayers. (CIR v. Tokyo Shipping Co. Ltd., G.R.
the relevance of each of No. 68252, May 26, 1996)
these considerations. (9%) (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
2 Mr. Alvarez is in the retail (B) The assessment is invalid; the law requires a statement of the facts and the TAX Taxp Asse 2013
7 business. He received a law upon which the assessment is based. According REMEDI ayer' ssm
deficiency tax assessment to Section 228, NIRC, Azucena Reyes v. Commissioner(UP LAW COMPLEX & ES s ent
from the BIR containing PHILIPPINE ASSOCIATION OF LAW SCHOOLS) rem
only the computation of the edie
deficiency tax and the s
penalties, without any
explanation of the factual
and legal bases for the
assessment. Is the
assessment valid? (1%) (A)
The assessment is valid; all
that Mr. Alvarez has to
know is the amount of the
tax.
(B) The assessment is
invalid; the law requires a
statement of the facts and
the law upon which the
assessment is based.
(C) The assessment is valid
 but Mr. Alvarez can still
contest it. (D) The
assessment is invalid
because Mr. Alvarez has no
way to determine if the
computation is erroneous.
2 Taxpayer A was required by (C) The waiver is invalid; the date of acceptance is crucial in counting the start TAX Taxp Asse 2013
8 the BIR to sign and submit a of the period of suspension of the prescriptive period. REMEDI ayer' ssm
waiver of the statute of ES s ent
limitations on the According to Commissioner v. Kudos Metal Corp., G.R. No. 178087, May 5, rem
assessment period, to give 2010 edie
the BIR more time to (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) s
complete its investigation.
The BIR accepted the
waiver but failed to indicate
the date of its acceptance.
What is the legal status of
the waiver? (1%)

(A) The waiver is valid

because the date of
acceptance is immaterial
and unimportant.

(B) The waiver is invalid; the

taxpayer cannot be
required to waive the
statute of limitations.

(C) The waiver is invalid; the

date of acceptance is
crucial in counting the start
of the period of suspension
of the prescriptive period.
 (D) The waiver is valid,
having been accepted by
the BIR.
2 Taxpayer Andy received on (A) The FAN is invalid; Andy was not given the chance to respond to the PAN, TAX Taxp Asse 2013
9 January 3, 2010 a in violation of his due process rights. According to REMEDI ayer' ssm
preliminary assessment Section 228, NIRC; RR No. 12-99(UP LAW COMPLEX & PHILIPPINE ES s ent
notice (PAN) from the BIR, ASSOCIATION OF LAW SCHOOLS) rem
stating that he had fifteen edie
(15) days from its receipt to s
comment or to file a
protest. Eight (8) days later
(or on January11, 2010),
before he could comment
or file a protest, Andy
received the final
assessment notice (FAN).
Decide on the validity of
the FAN. (1%)
(A) The FAN is invalid; Andy
was not given the chance to
respond to the PAN, in
violation of his due process
rights.
(B) The FAN is invalid for
being premature.
(C) The FAN is valid since it
was issued before the right
to assess prescribed.
(D) The FAN is valid. There
is no legal requirement that
the FAN should await the
protest to the PAN because
protest to the PAN is not
 mandatory.
3 MSI Corp. imports orange (A) The appeal should be dismissed because a motion for reconsideration is Tariff Rem Gov 2013
0 and lemon concentrates as mandatory. and edie ern
raw materials for the fruit Custom s men
drinks it sells locally. The According to RA 9282; Rule 8, Revised Rules of the CTA s t
Bureau of Customs (BOC) (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS)
imposed a 1% duty rate on
the concentrates.
Subsequently, the BOC
changed its position and
held that the concentrates
should be taxed at 7% duty
rate. MSI disagreed with
the ruling and questioned it
in the CTA which upheld
MSI's position. The
Commissioner of Customs
appealed to the CTA en
banc without filing a
motion for reconsideration.
Resolve the appeal. (1%)

(A) The appeal should be

dismissed because a motion
for reconsideration is
mandatory.

(B) The appeal should be

dismissed for having been
filed out of time.
(C) The appeal should be
given due course since a
motion for reconsideration
is a useless exercise.
 (D) The appeal should be
upheld to be fair to the
government which needs
taxes.
3 The BIR, through the (D) None of the above. According to Sections 5 and 6, NIRC(UP LAW TAX Taxp Pow 2013
1 Commissioner, instituted a COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) REMEDI ayer' ers
system requiring taxpayers ES s and
to submit to the BIR a rem Duti
summary list of their sales edie es
and purchases during the s of
year, indicating the name of BIR
the seller or the buyer and
the amount. Based on
these lists, the BIR
discovered that in 2004 ABC
Corp. purchased from XYZ
Corp. goods
worthP5,000,000. XYZ Corp.
did not declare these for
income tax purposes as its
reported gross sales for
2004was only Pl,000,000.
Which of the following
defenses may XYZ Corp.
interpose in an assessment
against it by the BIR? (1%)
(A) The BIR has no authority
to obtain third party
information to assess
taxpayers.
(B) The third party
information is inadmissible
as hearsay evidence. (C)
 The system of requiring
taxpayers to submit third
party information is illegal
for violating the right to
privacy. (D)
None of the above.
3 Congress passed a sin tax (C) correct because no government can deprive a person of his livelihood General Natu Nat 2013
2 law that increased the tax Principl re of ure
rates on cigarettes by No person shall be deprived of life, liberty, or property without due process of es of Taxa of
1,000%. The law was law, nor shall any person be denied the equal protection of the laws. (Art. III, Taxatio tion Tax
thought to be sufficient to Sec. 1 of the Constitution) n atio
drive many cigarette n
companies out of business,
and was questioned in
court by a cigarette
company that would go out
of business because it
would not be able to pay
the increased tax. The
cigarette company is
__________ (1%)
(A) wrong because taxes
are the lifeblood of the
government
(B) wrong because the law
recognizes that the power
to tax is the power to
destroy

(C) correct because no

government can deprive a
person of his livelihood

(D) correct because

 Congress, in this case,
exceeded its power to tax
Mr. Alas sells shoes in
Makati through a retail
store. He pays the VAT on
his gross sales to the BIR
and the municipal license
tax based on the same
gross sales to the City of
Makati. He comes to you
for advice because he
thinks he is being subjected
to double taxation. What
General Doct
advice will you give him? (D) Double taxation is allowed where one tax is imposed by the national Dou
Principl rines
3 (1%) (A) government and the other by the local government. According ble
es of in 2013
3 Yes, there is double to CIR v. Solidbank Corp., G.R. No. 148191, Nov. 25, 2003(UP LAW COMPLEX & taxa
Taxatio Taxa
taxation and it is PHILIPPINE ASSOCIATION OF LAW SCHOOLS) tion
n tion
oppressive.
(B) The City of Makati does
not have this power.
(C) Yes, there is double
taxation and this is illegal in
the Philippines. (D) Double
taxation is allowed where
one tax is imposed by the
national government and
the other by the local
government.
Prior to the VAT law, sales Esca
(C) The plan is improper; the veil of corporate fiction can be pierced so that General Doct
of cars were subject to a pe
the second sale will be considered the taxable sale. Principl rines
3 sales tax but the tax applied fro
es of in 2013
4 only to the original or the m
According to Koppel Philippines Inc. v. Yatco, 77 Phil 496 Taxatio Taxa
first sale; the second and taxa
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) n tion
subsequent sales were not tion:
subject to tax. Deltoid Tax
Motors, Inc. (Deltoid) hit on Evas
the idea of setting up a ion
wholly-owned subsidiary, vis-
Gonmad Motors, Inc. à-vis
(Gonmad), and of selling its Tax
assembled cars to Gonmad Avoi
at a low price so it would dan
pay a lower tax on the first ce
sale. Gonmad would then
sell the cars to the public at
a higher price without
paying any sales tax on this
subsequent sale.
Characterize the
arrangement. (1%)

A. The plan is a legitimate

exercise of tax planning and
merely takes advantage of a
loophole in the law.

B. The plan is legal because

the government collects
taxes anyway.
C. The plan is improper; the
veil of corporate fiction can
be pierced so that the
second sale will be
considered the taxable sale.

D. The government must

respect Gonmad's separate
juridical personality and
 Deltoid's taxable sale to it.
The municipality of San
Isidro passed an ordinance
imposing a tax on
installation managers. At
that time, there was only
one installation manager in
the municipality; thus, only
he would be liable for the Scop
Con
tax. Is the law e
General stitu
constitutional? (1%) and
(C) It is constitutional as it applies to all persons in that class. Principl tion
3 (A) It is unconstitutional Limit
According to Shell Co. of P.I. v. Vaño, 94 Phil 387(UP LAW COMPLEX & es of al 2013
5 because it clearly ation
PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio limit
discriminates against this of
n atio
person. Taxa
ns
(B) It is unconstitutional for tion
lack of legal basis.
(C) It is constitutional as it
applies to all persons in
that class. (D) It is
constitutional because the
power to tax is the power
to destroy.
A group of philanthropists Yes. Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
organized a non-stock, non- commissioner, who is now a member of this Court, stressed during the
Scop
profit hospital for charitable Concom debates that ". . . what is exempted is not the institution itself . . .; Con
e
purposes to provide those exempted from real estate taxes are lands, buildings and improvements General stitu
and
medical services to the actually, directly and exclusively used for religious, charitable or educational Principl tion
3 Limit
poor. The hospital also purposes." Father Joaquin G. Bernas, an eminent authority on the Constitution es of al 2013
6 ation
accepted paying patients and also a member of the Concom, adhered to the same view that the Taxatio limit
of
although none of its income exemption created by said provision pertained only to property taxes. In his n atio
Taxa
accrued to any private treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax ns
tion
individual; all income were exemption covers property taxes only." Indeed, the income tax exemption
plowed back for the claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of
 hospital's use and not more
than 30% of its funds were
used for administrative
purposes.
the Constitution. (CIR v. CA, GR No. 124043. October 14, 1998)
Is the hospital subject to tax
on its income? If it is, at
what rate? (6%)
Mr. Amado leased a piece
Con
of land owned by the
stitu
Municipality of
tion
Pinagsabitan and built a
al
warehouse on the property
Limi
for his business operations. Scop
tati
The Municipal Assessor e
General ons;
assessed Mr. Amado for Yes, the assessment is proper. The land, although owned by the municipality, and
Principl Usa
3 real property taxes on the is not exempt from real property tax because the beneficial use has been Limit
es of ge 2013
7 land and the warehouse. granted to a taxable person. (Sec 234 (a), LGC) ation
Taxatio and
Mr. Amado objected to the (UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) of
n not
assessment, contending Taxa
Ow
that he should not be asked tion
ners
to pay realty taxes on the
hip
land since it is municipal
as
property.
basi
Was the assessment
s
proper? (5%)
XYZ Corporation Attri Attri
manufactures glass panels bute but
General
and is almost at the point of s or es
(B) It should not grant permission because a tax is generally a pecuniary Principl
3 insolvency. It has no more Char or
burden. According to Characteristics of Taxes(UP LAW es of 2013
8 cash and all it has are acter Cha
COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Taxatio
unsold glass panels. It istics ract
n
received an assessment of eris
from the BIR for deficiency Taxe tics
 income taxes. It wants to
pay but due to lack of cash,
it seeks permission to pay
in kind with glass panels.
Should the BIR grant the
requested permission? (1%)
(A) It should grant
permission to make
payment convenient to
taxpayers.
(B) It should not grant of
permission because a tax is s Tax
generally a pecuniary es
burden.
(C) It should grant
permission; otherwise, XYZ
Corporation would not be
able to pay.
(D) It should not grant
permission because the
government does not have
the storage facilities for
glass panels.
Choose the correct answer. Impo
Smuggling - (1%) rtati
(A) does not extend to the on in
entry of imported or viola
C. Smuggling is committed by any person who shall fraudulently import into Tariff
exported articles by means tion Smu
the Philippines, or assist in so doing, any article, contrary to law, or shall and
1 of any false or fraudulent of uggl 2014
receive, conceal, buy, sell, or any manner facilitate the transportation, Custom
invoice, statement or tax ing
knowing the same to have been imported contrary to law. (UST) s
practices; the entry of credi
goods at less than the true t
weight or measure; or the certi
filing of any false or ficat
 fraudulent entry for the
payment of drawback or
refund of duties.
(B) is limited to the import
of contraband or highly
dutiable cargo beyond the
reach of customs
authorities.
(C) is committed by any
person who shall
fraudulently import or bring
into the Philippines, or
e
assist in so doing, any
article, contrary to law, or
shall receive, conceal, buy,
sell or any manner facilitate
the transportation,
concealment or sale of such
article after importation,
knowing the same to have
been imported contrary to
law.
(D) is punishable by
administrative penalty only.
In accordance with the No, the petition for certiorarifiled by Baguio City will not prosper. As stated in Gra
Natu
Local Government Code ValleyTrading Co., Inc. v. CFI of Isabela(G.R. No. L-49529, March 31, 1989) and nt
re
(LGC), the Sangguniang Angeles City v. Angeles City Electric Corporation(G.R. No. 166134, June 29, of
Local and
Panglungsod (SP) of Baguio 2010), the prohibition on the issuance of an order or writ enjoining the loca
Govern Sour
City enacted Tax Ordinance collection of taxes applies only to national internal revenue taxes, and l
2 ment ce of 2014
No. 19, Series of 2014, not to local taxes. Unlike the NIRC, there is no express provision in the taxi
Taxatio Taxi
imposing a P50.00 tax on all Local Government Code which prohibits courts from enjoining the ng
n ng
the tourists and travellers collection of such taxes. Therefore, the RTC was properly vested with pow
Pow
going to Baguio City. In authority to issue the assailed TRO enjoining Baguio City from imposing the er
er
imposing the local tax, the local tax. (UST) und
SP reasoned that the tax er
collected will be used to the
maintain the cleanliness of LGC
Baguio City and for the
beautification of its tourist
attractions.Claiming the tax
to be unjust, Baguio
Travellers Association
(BTA), an association of
travel agencies in Baguio
City, filed a petition for
declaratory relief before
the Regional Trial Court
(RTC) because BTA was
apprehensive that tourists
might cancel their bookings
with BTA’s member
agencies. BTA also prayed
for the issuance of a
Temporary Restraining
Order (TRO) to enjoin
Baguio City from enforcing
the local tax on their
customers and on all
tourists going to Baguio
City.The RTC issued a TRO
enjoining Baguio City from
imposing the local tax.
Aggrieved, Baguio City filed
a petition for certiorari
before the Supreme Court
(SC) seeking to set aside the
TRO issued by the RTC on
the ground that collection
 of taxes cannot be
enjoined. Will the petition
prosper? (5%)
Madam X owns real
The administrative remedies available to Madam Xto contest the
property in Caloocan City.
assessment and their respective prescriptive periods are as follows:
On July 1, 2014, she Con
1. Pay the deficiency real property tax under protest (Section 252, LGC);
received a notice of testi
2. File the protest with the local treasurer –The protest in writing muse be
assessment from the City Taxp ng
filed within
Assessor, informing her of a ayer' an
thirty (30) days from payment of the tax to the provincial, city, or municipal
deficiency tax on her s asse
treasurer, Real
property. She wants to rem ssm
in the case of a municipality within Metropolitan Manila Area, who shall Propert
contest the assessment. edie ent
3 decide the y 2014
(4%) s of
protest within sixty (60) days from receipt (Section 252, LGC); Taxatio
(Real valu
3. Appeal to the LBAA –If protest is denied or upon the lapse of the 60-day n
(A) What are the Prop e of
period for
administrative remedies erty real
the treasurer to decide, the taxpayer may appeal to the LBAA within 60
available to Madam X in Tax) pro
days and the case decided within 120 days (Section 226 & 229, LGC)
order to contest the pert
4. Appeal to the CBAA –If not satisfied with the decision of the LBAA, appeal to
assessment and their y
the CBAA within 30 days from receipt of a copy of the decision (Section 229(c),
respective prescriptive
LGC). (UST)
periods?
Madam X owns real
property in Caloocan City. Pay
Taxp
On July 1, 2014, she men
No. The payment of the deficiency tax is a condition before she can ayer'
received a notice of t of
protest the deficiency assessment. It is the decision on the protestor s
assessment from the City Real real
inaction thereon that gives herthe right to appeal. This means that she rem
Assessor, informing her of a Propert pro
cannot refuse to pay the deficiency tax assessment during the pendency edie
4 deficiency tax on her y pert 2014
of the appeal because it is the payment itself which gives rise to the remedy. s
property. She wants to Taxatio y
The law provides that no protest (which is the beginning of the disputation (Real
contest the assessment. n und
process) shall be entertained unless the taxpayer first pays the tax Prop
(4%)(B) May Madam X er
(Section 252, LGC). (UST) erty
refuse to pay the deficiency prot
Tax)
tax assessment during the est
pendency of her appeal?
5 "Doña Evelina, a rich widow Move for the execution of the judgment which has already become final. Local Taxp clai 2014
engaged in the business of (UST) Govern ayer' m
currency exchange, was ment s for
assessed a considerable Taxatio rem refu
amount of local business n edie nd
taxes by the City s of
Government of Bagnet by (Loc tax
virtue of Tax Ordinance No. al cred
24. Despite her objections Taxe it
thereto, Doña Evelina paid s) for
the taxes. Nevertheless, erro
unsatisfied with said Tax neo
Ordinance, Doña Evelina, usly
through her counsel Atty. or
ELP, filed a written claim for illeg
recovery of said local ally
business taxes and coll
contested the assessment. ecte
Her claim was denied, and d
so Atty. ELP elevated her tax,
case to the Regional Trial fee
Court (RTC). or
The RTC declared Tax char
Ordinance No. 24 null and ge
void and without legal
effect for having been
enacted in violation of the
publication requirement of
tax ordinances and revenue
measures under the Local
Government Code (LGC)
and on the ground of
double taxation. On appeal,
the Court of Tax Appeals
 (CTA) affirmed the decision
of the RTC. No motion for
reconsideration was filed
and the decision became
final and executory. (4%)"

(A) If you are Atty. ELP,

what advice will you give
Doña Evelina so that she
can recover the subject
local business taxes?
6 "Doña Evelina, a rich widow Yes, subject to the tax benefit rule. The local business tax paid is a business- Local Com Com 2014
engaged in the business of connected tax hence, deductible from gross income. If at the time of its Govern mon mon
currency exchange, was deduction it resulted to a tax benefit to Dona Evelina, then the recovery will ment Limit Limi
assessed a considerable form part of gross income to the extent of the tax benefit on the previous Taxatio ation tati
amount of local business deduction (Section 34(C)(1), NIRC). (UST) n s on ons
taxes by the City the on
Government of Bagnet by taxin the
virtue of Tax Ordinance No. g taxi
24. Despite her objections pow ng
thereto, Doña Evelina paid ers pow
the taxes. Nevertheless, of ers
unsatisfied with said Tax LGU of
Ordinance, Doña Evelina, LGU
through her counsel Atty.
ELP, filed a written claim for
recovery of said local
business taxes and
contested the assessment.
Her claim was denied, and
so Atty. ELP elevated her
case to the Regional Trial
Court (RTC).The RTC
declared Tax Ordinance No.
 24 null and void and
without legal effect for
having been enacted in
violation of the publication
requirement of tax
ordinances and revenue
measures under the Local
Government Code (LGC)
and on the ground of
double taxation. On appeal,
the Court of Tax Appeals
(CTA) affirmed the decision
of the RTC. No motion for
reconsideration was filed
and the decision became
final and executory.
(4%)"(B) If Doña Evelina
eventually recovers the
local business taxes, must
the same be considered as
income taxable by the
national government?
Dr. Taimtim is an alumnus
of the College of Medicine
No. the donation is not deductible. The chapel is owned by a privately-owned Ded
of Universal University
university hence, the donation for the maintenance of the chapel is a ucti
(UU), a privately-owned
donation to the university. The donation to be deductible must comply ons
center for learning which Gros
with the requirement that the net income of the done must not inure to the Income fro
grants yearly dividends to s
7 benefit of any private stockholder or individual. In the instant case, the Taxatio m 2014
its stockholders.UU has a Inco
university is granting yearly dividends to its stock holders which is a clear n Gro
famous chapel located me
violation of the law appertaining to the so-called “private inurement ss
within the campus where
doctrine” thereby making the donation non-deductible (Section 34(H)(1), Inco
the old folks used to say
NIRC). (UST) me
that anyone who wanted to
pass the medical board
 examinations should offer a
dozen roses on all the
Sundays of October. This
was what Dr. Taimtim did
when he was still reviewing
for the board examinations.
In his case, the folk saying
proved to be true because
he is now a successful
cardiologist. Wanting to
give back to the chapel and
help defray the costs of its
maintenance, Dr. Taimtim
donated P50,000.00 to the
caretakers of the chapel
which was evidenced by an
acknowledgment receipt.In
computing his net taxable
income, can Dr.Taimtim use
his donation to the chapel
as an allowable deduction
from his gross income
under the National Internal
Revenue Code (NIRC)? (4%)
Mr. Gipit borrowed from No. Section 50 of Rev. Regs. No. 2, otherwise known as Income Tax
Sour
Mr. Maunawain Regulations, provides
ces
P100,000.00, payable in five that if a debtor performs services for a creditor who cancels the debt in
of
(5) equal monthly consideration for such services, the debtor realizes income to that
Income Inco inco
installments. Before the amount as
8 Taxatio me me 2014
first installment became compensation forhis services. In the given problem, the cancellation of
n Tax subj
due, Mr. Gipit rendered Mr. Gipit’s indebtedness up to the amount of Php 75,000.00 gave rise
ect
general cleaning services in to compensation income subject to income tax, since Mr. Maunawain
to
the entire office building of condoned such amount as consideration for the general cleaning services
tax
Mr. Maunawain, and as rendered by Mr. Gipit. (UST)
 compensation therefor, Mr.
Maunawain cancelled the
indebtedness of Mr. Gipit
up to the amount of
P75,000.00. Mr. Gipit
claims that the cancellation
of his indebtedness cannot
be considered as gain on his
part which must be subject
to income tax, because
according to him, he did not
actually receive payment
from Mr. Maunawain for
the general cleaning
services. Is Mr. Gipit
correct? Explain. (4%)
Which of the following is an
Excl
exclusion from gross
usio
income? (1%)
ns
(A) Salaries and wages Gros
Income fro
(B) Cash dividends s
9 D. De minimis benefits (UST) Taxatio m 2014
(C) Liquidating dividends Inco
n Gro
after dissolution of a me
ss
corporation
Inco
(D) De minimis benefits
me
(E) Embezzled money
1 Triple Star, a domestic No. Pursuant to the case of Commissioner of Internal Revenue v. Baier- Income Gros Situ 2014
0 corporation, entered into a Nickel(G.R. No. 153793, August 29, 2006), the factor which determines the Taxatio s s of
Management Service source of income for personal services isthe place where the services n Inco Tax
Contract with Single Star, a were actually rendered. Since Single Star, a non-resident foreign me atio
non-resident foreign corporation, will perform all the managerial services for Triple Star’s n
corporation with no branch in Hong Kong, all compensation income arising from the
property in the Philippines. performance of such services will be considered income from sources
Under the contract, Single outside the Philippines, and therefore not subject to Philippine income tax.
 Star shall provide
managerial services for
Triple Star’s Hongkong
branch. All said services
shall be performed in
Hongkong.Is the (UST)
compensation for the
services of Single Star
taxable as income from
sources within the
Philippines? Explain. (4%)
Which of the following
should not be claimed as
deductions from gross
income? (1%)
(A) discounts given to
Ded
senior citizens on certain
ucti
goods and services.
on
(B) advertising expense to Gros
B. Advertising expense to maintain some form of goodwill for the taxpayer’s Income fro
1 maintain some form of s
business. Taxatio m 2014
1 goodwill for the Inco
(UST) n Gro
taxpayer’s business. me
ss
(C) salaries and bonuses
Inco
paid to employees.
me
(D) interest payment on
loans for the purchase of
machinery and
equipment used in
business.
Hopeful Corporation No. Since Hopeful Corporationexercised its right to redeem the property, Taxa Tax
obtained a loan from Generous Bankis Income tion atio
1
Generous Bank and not liable to pay capital gains tax on the foreclosure sale. As stated in the Taxatio of n of 2014
2
executed a mortgage on its analogous case n dom capi
real property to secure the of Supreme Transliner, Inc., v. BPI Family Savings Bank, Inc. (G.R. No. 165617, estic tal
 loan. When Hopeful
Corporation failed to pay
the loan, Generous Bank
extrajudicially foreclosed
February 25, 2011, 644 SCRA 59), Rev. Regs. No. 4-99 expressly provides that if
the mortgage on the
a mortgagor exercises his right of redemption within one year from the
property and acquired the
issuance of the certificate of sale, no capital gains tax shall be imposed
same as the highest bidder.
because no sale or transfer of real property was realized. It is only in case of
A month after the corp
non-redemption by Hopeful Corporation that the obligation to pay capital gain
foreclosure, Hopeful orati
gains tax arises, which shall be based on the bid price of the highest bidder. s
Corporation exercised its ons
The tax will be imposed only upon the expiration of the one-year period of
right of redemption and
redemption. Furthermore, the obligation to pay the capital gains tax would
was able to redeem the
primarily fall on the mortgagor, Hopeful Corporation, and not on Generous
property. Is Generous Bank
Bank. (UST)
liable to pay capital gains
tax as a result of the
foreclosure sale? Explain.
(4%)
On August 31, 2014,
Haelton Corporation (HC),
thru its authorized
representative Ms. Pares,
sold a 16-storey
The tax planning scheme adopted by Haeltown Corporation constitutes Taxa
commercial building known
tax evasion. According to CIR v. Estate of Benigno Toda(G.R. No. 147188, tion
as Haeltown Building to Mr. Gen
September 14, 2004), a transaction where a taxpayer made it appear that of
Belly for P100 million. Mr. Income eral
1 there were two sales of the property was considered “tainted with dom
Belly, in turn, sold the same Taxatio Prin 2014
3 fraud.” The sole purpose of acquiring and transferring title of the property on estic
property on the same day n cipl
the same day was to create a tax shelter. The sale toMr. Belly (which is subject corp
to Bell Gates, Inc. (BGI) for es
to individual capital gains tax) was to mislead the BIR and avoid the higher orati
P200 million. These two (2)
corporate income tax. (UST) ons
transactions were
evidenced by two (2)
separate Deeds of Absolute
Sale notarized on the same
day by the same notary
public.Investigations by the
Bureau of Internal Revenue
(BIR) showed that: (1) the
Deed of Absolute Sale
between Mr. Belly and BGI
was notarized ahead of the
sale between HC and Mr.
Belly; (2) as early as May
17, 2014, HC received P40
million from BGI, and not
from Mr. Belly; (3) the said
payment of P40 million was
recorded by BGI in its books
as of June 30, 2014 as
investment in Haeltown
Building; and (4) the
substantial portion of P40
million was withdrawn by
Ms. Pares through the
declaration of cash
dividends to all its
stockholders.Based on the
foregoing, the BIR sent
Haeltown Corporation a
Notice of Assessment for
deficiency income tax
arising from an alleged
simulated sale of the
aforesaid commercial
building to escape the
higher corporate income
tax rate of thirty percent
(30%). What is the liability
of Haeltown Corporation, if
 any? (4%)
A, B, and C, all lawyers,
formed a partnership called
ABC Law Firm so that they
can practice their
profession as lawyers. For
the year 2012, ABC Law
Firm received earnings and
paid expenses, among
which are as follows:
(6%)Earnings:(1)
The three (3) items of earnings should be included in the computation of ABC
Professional/legal fees from
Law Firm’sgross income. The professional/legal fees from various clients is Sour
various clients(2) Cash prize
included as part of gross income being in the nature of compensation for ces
received from a religious
services (Section 32(A)(1), NIRC). The cash prize from a religious society in of
society in recognition of
recognition of its exemplaryservices is also included there being no law Income Inco inco
1 theexemplary service of
providing for its exclusion. This is not a prize in recognition of any of Taxatio me me 2014
4 ABC Law Firm(3) Gains
the achievements enumerated under the law hence, should form part of n Tax subj
derived from sale of excess
gross income (Section 32(B)(7)(c), NIRC). The gains from sale of excess ect
computers and
computers and laptops should also be included as part of the firm’s to
laptopsPayments:(1)
gross income because the term gross income specifically includes gains tax
Salaries of office staff(2)
derived from dealings in property (Section 32(A)(3), NIRC). (UST)
Rentals for office space(3)
Representation expenses
incurred in meetings with
client(A) What are the
items in the above
mentioned earnings which
should be included in the
computation of ABC Law
Firm’s gross income?
Explain.
A, B, and C, all lawyers, The law firm being formed as general professional partnership is entitled Income Taxa Ded
1
formed a partnership called to the Taxatio tion ucti 2014
5
ABC Law Firm so that they same deductions allowed to corporation (Section 26, NIRC). Hence, the three n of on
 can practice their
profession as lawyers. For
the year 2012, ABC Law
Firm received earnings and
paid expenses, among
which are as follows: (6%)
Earnings:
(1) Professional/legal fees
from various clients
(2) Cash prize received from
a religious society in
recognition of the gene
exemplary service of ABC (3) items of deductions mentioned in the problem are all deductible, they ral fro
Law Firm being in the nature of ordinary and necessary expenses incurred in the prof m
(3) Gains derived from sale practice of profession (Section 34(A), NIRC). However, the amount essio Gro
of excess computers and deductible for representation expenses incurred by a taxpayer engaged in nal ss
laptops sale of services, including a law firm, is subject to a ceiling of 1% of net part Inco
Payments: revenue.(RR No. 10-2002). (UST) ners me
(1) Salaries of office staff hips
(2) Rentals for office space
(3) Representation
expenses incurred in
meetings with client

(B) What are the items in

the above-mentioned
payments which may be
considered as deductions
from the gross income of
ABC Law Firm? Explain
A, B, and C, all lawyers, The net income having been earned by the law firm which is formed Taxa Con
Income
1 formed a partnership called and qualifies as a general professional partnership, is not subject to income tion seq
Taxatio 2014
6 ABC Law Firm so that they tax because the earner is devoid of any income tax personality. Each of uen
n
can practice their partner shall report as gross income his distributive shares, actuality gene ces
 profession as lawyers. For
the year 2012, ABC Law
Firm received earnings and
paid expenses, among
which are as follows:
(6%)Earnings:(1)
Professional/legal fees from
various clients(2) Cash prize
received from a religious
society in recognition of
theexemplary service of
ABC Law Firm(3) Gains
derived from sale of excess ral of
or constructively received, in the net income of the partnership. The
computers and prof pay
partnership is merely treated for income tax purposes as a pass-through entity
laptopsPayments:(1) essio men
so that its net income is not taxable at the level of the partnership bur saidnet
Salaries of office staff(2) nal t of
income should be attributed to the partners, whether or not distributed to
Rentals for office space(3) part inco
them, and they are liable to pay the income tax based on their respective
Representation expenses ners me
taxable income as individual taxpayers (Section 26, NIRC). (UST)
incurred in meetings with hips tax
client(C) If ABC Law Firm
earns net income in 2012,
what, if any, is the tax
consequence on the part of
ABC Law Firm insofar as the
payment of income tax is
concerned? What, if any, is
the tax consequence on the
part of A, B, and C as
individual partners, insofar
as the payment of income
tax is concerned?
Freezy Corporation, a No. The payments made in exchange for the revelation of a competitors Income Gros Ite
1
domestic corporation trade Taxatio s ms 2014
7
engaged in the secrets is considered an expense which is against law, morals, good n Inco not
 manufacture and sale of ice
cream, made payments to
customs, or
an officer of Frosty
public policy, which is not deductible (3M Philippines, Inc. v. CIR, G.R.
Corporation, a competitor
No. 82833, September 26, 1988). Also, the law will not allow the
in the ice cream business, in
deduction of bribes, kickback, ded
exchange for said officer’s
and other similar payments. Applying the principle of ejusdem generis, me uctu
revelation of Frosty
payment made by ble
Corporation’s trade secrets.
Freezy Corporation would fall under “other similar payments” which are not
May Freezy Corporation
allowed as
claim the payment to the
deduction from gross income (Section 34(A)(1)(c), NIRC). (UST)
officer as deduction from its
gross income? Explain. (4%)
In January 2013, your friend
got his first job as an office
clerk. He is single and lives
with his family who
depends upon him for
financial support. His
Ded
parents have long retired
ucti
from their work, and his
on
two (2) siblings are still Gros
Income fro
1 minors and studying in Yes. The law allows a basic personal exemption of Php 50,000.00 for s
Taxatio m 2014
8 grade school. In February each individual taxpayer (Section 35(A), NIRC). (UST) Inco
n Gro
2014, he consulted you as me
ss
he wanted to comply with
Inco
all the rules pertaining to
me
the preparation and filing of
his income tax return. He
now asks you the following:
(A) Is he entitled to
personal exemptions? If so,
how much? (1%)
1 In January 2013, your friend No. While his parents and minor sibling are living with and dependent upon Income Gros Ded
2014
9 got his first job as an office him for financial support, they are not qualified dependents for purposes of Taxatio s ucti
 clerk. He is single and lives
with his family who
depends upon him for
financial support. His
parents have long retired
from their work, and his
two (2) siblings are still on
minors and studying in fro
grade school. In February additional exemptions. The term “dependent” for purposes of the additional m
Inco
2014, he consulted you as personal exemption would include only legitimate, illegitimate, or legally n Gro
me
he wanted to comply with adopted children (Section 35(B), NIRC) (UST) ss
all the rules pertaining to Inco
the preparation and filing of me
his income tax return. He
now asks you the following:

(B) Is he entitled to
additional exemptions? If
so, how much? (1%)
2 In January 2013, your friend The taxes withheld from his salaries will not affect his taxable income because Income Inco Wit 2014
0 got his first job as an office they are not allowed as tax deductions but as tax credits. Tax deductions Taxatio me hhol
clerk. He is single and lives reduce taxable income while tax credits reduce the tax liability (Central Drug n Tax ding
with his family who Corporation v. CIR). (UST) tax
depends upon him for
financial support. His
parents have long retired
from their work, and his
two (2) siblings are still
minors and studying in
grade school. In February
2014, he consulted you as
he wanted to comply with
all the rules pertaining to
the preparation and filing of
 his income tax return. He
now asks you the following:

(C) What is the effect of the

taxes withheld from his
salaries on his
taxable income? (2%)
Mr. De Sarapen is a
candidate in the upcoming
Senatorial elections. Mr. De
Almacen, believing in the
The answer must be qualified. Section 99(C) of the NIRC explicitly
sincerity and ability of Mr.
provides that any contribution in cash or in kind to any candidate,
De Sarapen to introduce
political party or coalition of parties for campaign purposes shall be Con
much needed reforms in
governed by the Election Code, as amended. On the other hand, Section trib
the country, contributed
13 of the Republic Act No. 7166 specifically states that any provision of law to utio
P500,000.00 in cash to the
the contrary notwithstanding, any contribution in cash or kind to any Pers n
campaign chest of Mr. De
2 candidate or political party or coalition of parties for campaign purposes, Donor’s on for
Sarapen. In addition, Mr. De 2014
1 duly reports to the Commission on Elections (COMELEC) shall not be subject to Tax liabl Elec
Almacen purchased
the payment of any gift tax.Thus, if Mr. De Almacen reported his campaign e tion
tarpaulins, t-shirts,
contributions of Php 500,000.00 in cash, tarpaulins, t-shirts, umbrellas, Cam
umbrellas, caps and other
caps, and other campaign materials to the COMELEC,then the BIR cannot paig
campaign materials that he
impose donor’s tax on such contributions. Conversely, if Mr. De Almacen n
also donated to Mr. De
failed to report these campaign contributions to the COMELEC, such
Sarapen for use in his
contributions would be subject to donor’s tax. (UST)
campaign. Is the
contribution of cash and
campaign materials subject
to donor’s tax? (4%)
"Mr. X, a Filipino residing in Com with
(A) All the items of properties enumerated in the problem shall form part of
Alabama, U.S.A., died on posi resp
the gross
2 January 2, 2013 after Estate tion ect
estate of Mr. X. The composition of the gross estate of a decedent who is a 2014
2 undergoing a major heart Tax of to
Filipino citizen shall include all of his properties, real or personal, tangible or
surgery. He left behind to Gros non
intangible, wherever situated (Section 85, NIRC). (UST)
his wife and two (2) kids s resi
 several properties, to wit:
(4%)
(1) Family home in Makati
City;
(2) Condominium unit in Las
Piñas City;
(3) Proceeds of health
insurance from Take Care, a
health
den
maintenance organization
t
in the Philippines; and
Estat Filip
(4) Land in Alabama, U.S.A.
e ino
The following expenses
citiz
were paid:
en
(1) Funeral expenses;
(2) Medical expenses; and
(3) Judicial expenses in the
testate proceedings."

(A) What are the items that

must be considered as part
of the gross estate income
of Mr. X?
"Mr. X, a Filipino residing in
Alabama, U.S.A., died on
January 2, 2013 after Ded
B) All the items of expenses are deductible from his gross estate. Ded
undergoing a major heart ucti
However, the allowable amount of funeral expenses shall be 5% of the gross uctio
surgery. He left behind to ons
2 estate or actual whicheveris lower, but in no case shall the amount deductible Estate ns
his wife and two (2) kids fro 2014
3 go beyond Php 200,000.00. Likewise, the deductible medical expenses must Tax from
several properties, to wit: m
be limited to those incurred within one year prior to his death but not to Estat
(4%)(1) Family home in Esta
exceed Php 500,000.00 (Section 86, NIRC). (UST) e
Makati City;(2) te
Condominium unit in Las
Piñas City;(3) Proceeds of
 health insurance from Take
Care, a healthmaintenance
organization in the
Philippines; and(4) Land in
Alabama, U.S.A.The
following expenses were
paid:(1) Funeral expenses;
(2) Medical expenses;
and(3) Judicial expenses in
the testate
proceedings."(B) What are
the items that may be
considered as deductions
from the gross estate?
2 During his lifetime, Mr. Yes. Unpaid mortgages upon, or any indebtedness with respect to property Estate Ded Unp 2014
4 Sakitin obtained a loan are deductible from the gross estate only if the value of the decedent’s Tax uctio aid
amounting to P10 million interest in said property, undiminished by such mortgage or indebtedness, is ns mor
from Bangko Uno for the included in the gross estate (Section 86(A)(1)(e)).In the instant case, the from tgag
purchase of a parcel of land interest of the decedent in the property purchased from the loan where the Estat e
located in Makati City, using said property was used as the collateral, was not included in the gross estate. e
such property as collateral Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death
for the loan. The loan was is not deductible as “Claims against the Estate". (UST)
evidenced by a duly
notarized promissory note.
Subsequently, Mr. Sakitin
died. At the time of his
death, the unpaid balance
of the loan amounted to P2
million. The heirs of Mr.
Sakitin deducted the
amount of P2 million from
the gross estate, as part of
the “Claims against the
Estate.” Such deduction
 was disallowed by the
Bureau of Internal Revenue
(BIR) Examiner, claiming
that the mortgaged
property was not included
in the computation of the
gross estate. Do you agree
with the BIR? Explain. (4%)
"Mr. X, a Filipino residing in
Alabama, U.S.A., died on
January 2, 2013 after
undergoing a major heart
surgery. He left behind to
his wife and two (2) kids
several properties, to wit:
(4%)(1) Family home in with
Makati City;(2) resp
Condominium unit in Las Com ect
Piñas City;(3) Proceeds of posi to
health insurance from Take (A) All the items of properties enumerated in the problem shall form part of tion non
2 Care, a healthmaintenance the gross estate of Mr. X. The composition of the gross estate of a decedent Estate of resi
2014
5 organization in the who is a Filipino citizen shall include all of his properties, real or personal, Tax Gros den
Philippines; and(4) Land in tangible or intangible, wherever situated (Section 85, NIRC). (UST) s t
Alabama, U.S.A.The Estat Filip
following expenses were e ino
paid:(1) Funeral expenses; citiz
(2) Medical expenses; en
and(3) Judicial expenses in
the testate
proceedings."(A) What are
the items that must be
considered as part of the
gross estate income of Mr.
X?
 "Mr. X, a Filipino residing in
Alabama, U.S.A., died on
January 2, 2013 after
undergoing a major heart
surgery. He left behind to
his wife and two (2) kids
several properties, to wit:
(4%)
(1) Family home in Makati
City;
(2) Condominium unit in Las B) All the items of expenses are deductible from his gross estate.
Piñas City; However, the Ded
Ded
(3) Proceeds of health allowable amount of funeral expenses shall be 5% of the gross estate or ucti
uctio
insurance from Take Care, a actual whichever ons
2 Estate ns
health is lower, but in no case shall the amount deductible go beyond Php fro 2014
6 Tax from
maintenance organization 200,000.00. Likewise, m
Estat
in the Philippines; and the deductible medical expenses must be limited to those incurred within one Esta
e
(4) Land in Alabama, U.S.A. year prior to his death but not to exceed Php 500,000.00 (Section 86, NIRC). te
The following expenses (UST)
were paid:
(1) Funeral expenses;
(2) Medical expenses; and
(3) Judicial expenses in the
testate proceedings."

(B) What are the items that

may be considered as
deductions from the gross
estate?
During his lifetime, Mr. Yes. Unpaid mortgages upon, or any indebtedness with respect to property Ded Unp
Sakitin obtained a loan are deductible from the gross estate only if the value of the decedent’s uctio aid
2 Estate
amounting to P10 million interest in said property, undiminished by such mortgage or indebtedness, is ns mor 2014
7 Tax
from Bangko Uno for the included in the gross estate (Section 86(A)(1)(e)).In the instant case, the from tgag
purchase of a parcel of land interest of the decedent in the property purchased from the loan where the Estat e
 located in Makati City, using
such property as collateral
for the loan. The loan was
evidenced by a duly
notarized promissory note.
Subsequently, Mr. Sakitin
died. At the time of his
death, the unpaid balance
of the loan amounted to P2
million. The heirs of Mr.
Sakitin deducted the said property was used as the collateral, was not included in the gross estate.
amount of P2 million from Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death e
the gross estate, as part of is not deductible as “Claims against the Estate". (UST)
the “Claims against the
Estate.” Such deduction
was disallowed by the
Bureau of Internal Revenue
(BIR) Examiner, claiming
that the mortgaged
property was not included
in the computation of the
gross estate. Do you agree
with the BIR? Explain. (4%)
"Mr. X, a Filipino residing in with
Alabama, U.S.A., died on resp
Com
January 2, 2013 after ect
posi
undergoing a major heart (A) All the items of properties enumerated in the problem shall form part of to
tion
surgery. He left behind to the gross non
2 Estate of
his wife and two (2) kids estate of Mr. X. The composition of the gross estate of a decedent who is a resi 2014
8 Tax Gros
several properties, to wit: Filipino citizen shall include all of his properties, real or personal, tangible or den
s
(4%) intangible, wherever situated (Section 85, NIRC). (UST) t
Estat
(1) Family home in Makati Filip
e
City; ino
(2) Condominium unit in Las citiz
 Piñas City;
(3) Proceeds of health
insurance from Take Care, a
health
maintenance organization
in the Philippines; and
(4) Land in Alabama, U.S.A.
The following expenses
were paid:
en
(1) Funeral expenses;
(2) Medical expenses; and
(3) Judicial expenses in the
testate proceedings."

(A) What are the items that

must be considered as part
of the gross estate income
of Mr. X?
"Mr. X, a Filipino residing in
Alabama, U.S.A., died on
January 2, 2013 after
undergoing a major heart
surgery. He left behind to
Ded
his wife and two (2) kids B) All the items of expenses are deductible from his gross estate. Ded
ucti
several properties, to wit: However, the allowable amount of funeral expenses shall be 5% of the gross uctio
ons
2 (4%)(1) Family home in estate or actual whicheveris lower, but in no case shall the amount deductible Estate ns
fro 2014
9 Makati City;(2) go beyond Php 200,000.00. Likewise, the deductible medical expenses must Tax from
m
Condominium unit in Las be limited to those incurred within one year prior to his death but not to Estat
Esta
Piñas City;(3) Proceeds of exceed Php 500,000.00 (Section 86, NIRC). (UST) e
te
health insurance from Take
Care, a healthmaintenance
organization in the
Philippines; and(4) Land in
Alabama, U.S.A.The
 following expenses were
paid:(1) Funeral expenses;
(2) Medical expenses;
and(3) Judicial expenses in
the testate
proceedings."(B) What are
the items that may be
considered as deductions
from the gross estate?
3 During his lifetime, Mr. Yes. Unpaid mortgages upon, or any indebtedness with respect to property Estate Ded Unp 2014
0 Sakitin obtained a loan are deductible from the gross estate only if the value of the decedent’s Tax uctio aid
amounting to P10 million interest in said property, undiminished by such mortgage or indebtedness, is ns mor
from Bangko Uno for the included in the gross estate (Section 86(A)(1)(e)).In the instant case, the from tgag
purchase of a parcel of land interest of the decedent in the property purchased from the loan where the Estat e
located in Makati City, using said property was used as the collateral, was not included in the gross estate. e
such property as collateral Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death
for the loan. The loan was is not deductible as “Claims against the Estate". (UST)
evidenced by a duly
notarized promissory note.
Subsequently, Mr. Sakitin
died. At the time of his
death, the unpaid balance
of the loan amounted to P2
million. The heirs of Mr.
Sakitin deducted the
amount of P2 million from
the gross estate, as part of
the “Claims against the
Estate.” Such deduction
was disallowed by the
Bureau of Internal Revenue
(BIR) Examiner, claiming
that the mortgaged
property was not included
 in the computation of the
gross estate. Do you agree
with the BIR? Explain. (4%)
"Mr. X, a Filipino residing in
Alabama, U.S.A., died on
January 2, 2013 after
undergoing a major heart
surgery. He left behind to
his wife and two (2) kids
several properties, to wit:
(4%)(1) Family home in with
Makati City;(2) resp
Condominium unit in Las Com ect
Piñas City;(3) Proceeds of posi to
health insurance from Take (A) All the items of properties enumerated in the problem shall form part of tion non
3 Care, a healthmaintenance the gross estate of Mr. X. The composition of the gross estate of a decedent Estate of resi
2014
1 organization in the who is a Filipino citizen shall include all of his properties, real or personal, Tax Gros den
Philippines; and(4) Land in tangible or intangible, wherever situated (Section 85, NIRC). (UST) s t
Alabama, U.S.A.The Estat Filip
following expenses were e ino
paid:(1) Funeral expenses; citiz
(2) Medical expenses; en
and(3) Judicial expenses in
the testate
proceedings."(A) What are
the items that must be
considered as part of the
gross estate income of Mr.
X?
"Mr. X, a Filipino residing in B) All the items of expenses are deductible from his gross estate. Ded Ded
Alabama, U.S.A., died on However, the uctio ucti
3 Estate
January 2, 2013 after allowable amount of funeral expenses shall be 5% of the gross estate or ns ons 2014
2 Tax
undergoing a major heart actual whichever from fro
surgery. He left behind to is lower, but in no case shall the amount deductible go beyond Php Estat m
 his wife and two (2) kids
several properties, to wit:
(4%)
(1) Family home in Makati
City;
(2) Condominium unit in Las
Piñas City;
(3) Proceeds of health
insurance from Take Care, a
health
maintenance organization 200,000.00. Likewise,
in the Philippines; and the deductible medical expenses must be limited to those incurred within one Esta
e
(4) Land in Alabama, U.S.A. year prior to his death but not to exceed Php 500,000.00 (Section 86, NIRC). te
The following expenses (UST)
were paid:
(1) Funeral expenses;
(2) Medical expenses; and
(3) Judicial expenses in the
testate proceedings."

(B) What are the items that

may be considered as
deductions from the gross
estate?
During his lifetime, Mr.
Sakitin obtained a loan Yes. Unpaid mortgages upon, or any indebtedness with respect to property
amounting to P10 million are deductible from the gross estate only if the value of the decedent’s Ded
Unp
from Bangko Uno for the interest in said property, undiminished by such mortgage or indebtedness, is uctio
aid
3 purchase of a parcel of land included in the gross estate (Section 86(A)(1)(e)).In the instant case, the Estate ns
mor 2014
3 located in Makati City, using interest of the decedent in the property purchased from the loan where the Tax from
tgag
such property as collateral said property was used as the collateral, was not included in the gross estate. Estat
e
for the loan. The loan was Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death e
evidenced by a duly is not deductible as “Claims against the Estate". (UST)
notarized promissory note.
 Subsequently, Mr. Sakitin
died. At the time of his
death, the unpaid balance
of the loan amounted to P2
million. The heirs of Mr.
Sakitin deducted the
amount of P2 million from
the gross estate, as part of
the “Claims against the
Estate.” Such deduction
was disallowed by the
Bureau of Internal Revenue
(BIR) Examiner, claiming
that the mortgaged
property was not included
in the computation of the
gross estate. Do you agree
with the BIR? Explain. (4%)
3 In a civil case for No. The Contract of Sale cannot be admitted in evidence. The document Judicial Judic Taki 2014
4 Annulment of Contract of is clearly taxable because the law imposes a documentary stamp tax Remedi ial ng
Sale, plaintiff Ma. Reklamo (DST) on Sales and Agreements to Sell, and Memoranda of Sale (Section es proc of
presented in evidence the 175, NIRC). Since the DST thereon is not paid, the effect is that the edur evid
Contract of Sale which she instrument, document or paper which require by law to be stamped and es enc
sought to be annulled. No which has been signed, issues, accepted and transferred without being e
documentary stamp tax on duly stamped shall not be recorded, nor shall it be used in evidence in
the Contract of Sale was any court until the requisite stamp or stamps shall have been
paid because according to affixed thereto and cancelled (Section 201, NIRC). In the case at bar, no
plaintiff Ma. Reklamo, there documentary stamp tax was paid on the Contract of Sale, hence, it
was no need to pay the cannot be used
same since the sale was not as her evidence in court. (UST)
registered with the Register
of Deeds. Plaintiff Ma.
Reklamo is now offering the
Contract of Sale as her
 evidence. Is the Contract of
Sale admissible? (4%)
Choose the correct answer.
Tax laws - (1%)
(A) may be enacted for the
promotion of private
enterprise or business for
as long as it gives incidental
advantage to the public or
the State
(B) are inherently Nat
General
legislative; therefore, may Natu ure
D.Tax laws adhere to uniformity and equality when all taxable articles or kinds Principl
3 not be delegated re of of
of property es of 2014
5 (C) are territorial in nature; Taxa Tax
of the same class are taxable at the same rate. (UST) Taxatio
hence, they do not tion atio
n
recognize the n
generally-accepted tenets
of international law
(D) adhere to uniformity
and equality when all
taxable articles or
kinds of property of the
same class are taxable at
the same rate
Choose the correct answer. (C) means taxing the same property twice when it should be taxed only once;
Double Taxation ‒ (1%)(A) it is tantamount to taxing the same person twice by the same jurisdiction for
is one of direct duplicate the same thing.
General Doct
taxations wherein two (2) "In order to constitute double taxation in the objectionable or prohibited Dou
Principl rines
3 taxes must be imposed on sense, the same property must be taxed twice when it should be taxed but ble
es of in 2014
6 the same subject matter, by once; both taxes must be imposed on the same property or subject matter, for taxa
Taxatio Taxa
the same taxing authority, the same purpose, by the same State, Government, or taxing authority, within tion
n tion
within the same the same jurisdiction or taxing district, during the same taxing period, and
jurisdiction, during the they must be the same kind or character of tax." (Villanueva v. City of Iloilo, 26
same period, with the same SCRA 578)
 kind or character of tax,
even if the purposes of
imposing the same are
different.(B) is forbidden by
law; and therefore, it is a
valid defense against the
validity of a tax measure.(C)
means taxing the same
property twice when it
should be taxed only once;
it is tantamount to taxing
the same person twice by
the same jurisdiction for
the same thing.(D) exists
when a corporation is
assessed with local business
tax as a manufacturer, and
at the same time, value-
added tax as a person
selling goods in the course
of trade or business.
3 Choose the correct answer. B. Tax avoidance is a tax-saving device within the means sanctioned by law. General Doct Esca 2014
7 Tax Avoidance ‒ (1%) (UST) Principl rines pe
(A) is a scheme used es of in fro
outside of those lawful Taxatio Taxa m
means and, when availed n tion taxa
of, it usually subjects the tion:
taxpayer to further or Tax
additional civil or criminal Avoi
liabilities. dan
(B) is a tax saving device ce
within the means
sanctioned by law.
(C) is employed by a
 corporation, the
organization of which is
prompted more on the
mitigation of tax liabilities
than for
legitimate business
purpose.
(D) is any form of tax
deduction scheme,
regardless if the same is
legal or not.
Begi
nnin
Under the Tariff and Importation begins when the carrying vessel or aircraft enters the jurisdiction Requ
g
Customs Code, as of the Philippines with intention to unlade therein. Importation is deemed irem
Tariff and
amended: terminated upon payment of the duties, taxes and other charges upon the ents
and endi
1 articles, or secured to be paid, at a port of entry and the legal permit of 2015
Custom ng
a. When does importation for withdrawal shall have been granted, or incase said articles are free impo
s of
begin and when is it of duties, taxes and other charges, until they have legally left the rtati
imp
deemed terminated? (2%) jurisdiction of the customs. (UST) on
orta
tion
Under the Tariff and
Customs Code, as
amended: b. In what easels
is the decision of the
Collector automatically Whenever the decision of the Collector of Customs is adverse to the
Tariff
reviewed by the government, the said decision is automatically elevated to the Rem Tax
and
2 Commissioner o f Customs? Commissioner of Customs for review, and if such decision is affirmed by edie pay 2015
Custom
In what instance/s is the the Commissioner of Customs, the same will be automatically elevated to s er
s
decision o f the and be finally reviewed by the Secretary of Finance. (UST)
Commissioner
automatically appealed to
the Secretary o f Finance?
(4%)
3 "LLL is a government The reclaimed properties are not subject to real property tax because Real Impo exe 2015
instrumentality created by LLL is a government instrumentality. Instrumentality refers to any agency Propert sitio mp
Executive Order to be of the National Government, not integrated within the department y n of tion
primarily responsible for framework vested with special functions or jurisdiction by law, endowed with Taxatio Real fro
integrating and directing all some if not all corporate powers, administering special funds, and enjoying n Prop m
reclamation projects for the operational autonomy, usually through a charter. Under the law, real property erty real
National Government. It owned by the Republic of the Philippines (Republic) is exempt from real Tax pro
was not organized as a property tax unless the beneficial use thereof has been granted to a taxable pert
stock or a non-stock person. When the title of the real property is transferred to LLL, the Republic y
corporation, nor was it remains the owner of the real property. Thus, such arrangement does not tax
intended to operate result in the loss of the tax exemption. (UST)
commercially and compete
in the private market.
By virtue ofits mandate, LLL
reclaimed several portions
ofthe foreshore and
offshore areas of the
Manila Bay, some of which
were within the territorial
jurisdiction ofQCity.
Certificates oftitle to the
reclaimed properties in
QCity were issued in the
name ofLLL in 2008. In
2014, Q City issued
Warrants of Levy on said
reclaimed properties of LLL
based on the assessment
for delinquent property
taxes for the years 2010 to
2013."

a. Are the reclaimed

properties registered in the
 name ofLLL subject to real
property tax? (4%)
4 "LLL is a government No. As a rule, properties owned by the Republic of the Philippines are Real Impo Pow 2015
instrumentality created by exempt from real property tax except when the beneficial use thereof has Propert sitio er
Executive Order to be been granted, for consideration or otherwise, to a taxable person. LLL leased y n of to
primarily responsible for out portions of the reclaimed properties to a taxable entity, such as the Taxatio Real levy
integrating and directing all popular fastfood restaurant, hence the reclaimed properties are subject to n Prop real
reclamation projects for the real property tax. (UST) erty pro
National Government. It Tax pert
was not organized as a y
stock or a non-stock tax
corporation, nor was it
intended to operate
commercially and compete
in the private market.By
virtue ofits mandate, LLL
reclaimed several portions
ofthe foreshore and
offshore areas of the
Manila Bay, some of which
were within the territorial
jurisdiction ofQCity.
Certificates oftitle to the
reclaimed properties in
QCity were issued in the
name ofLLL in 2008. In
2014, Q City issued
Warrants of Levy on said
reclaimed properties of LLL
based on the assessment
for delinquent property
taxes for the years 2010 to
2013."b. Will your answer
be the same in (a) iffrom
 2010 to the present time,
LLL is leasing portions ofthe
reclaimed properties for
the establishment and use
o f popular fastfood
restaurants J Burgers, G
Pizza, and K Chicken? (2%)
In 2014, M City approved Com
Com
an ordinance levying mon
mon
customs duties and fees on Limi
Limit
goods coming into the tati
ation
territorial jurisdiction of the Yes, on the groundthat the ordinance is ultra-vires. The taxing powers of local Local ons
s on
city. Said city ordinance was government units, such as M City, cannot extend to the levy of taxes, Govern on
the
5 duly published on February fees and charges already imposed by the national government, and this ment the 2015
taxin
15, 2014 with effectivity include, among others, the levy of customs duties under the Tariff and Taxatio taxi
g
date on March 1, 2014. Customs Code. (UST) n ng
pow
pow
ers
a. Is there a ground for ers
of
opposing said ordinance? of
LGU
(2%) LGU
6 In 2014, M City approved Any question on the constitutionality or legality of tax ordinances may be Local Taxp Que 2015
an ordinance levying raised on appeal within thirty (30) days from the effectivity to the Govern ayer' stio
customs duties and fees on Secretary of Justice. The Secretary of Justice shall render a decision ment s n
goods coming into the within sixty (60) days from the date of receipt of the appeal. Thereafter, within Taxatio rem the
territorial jurisdiction of the thirty (30) day after receipt of the decision or the lapse of the sixty-day n edie lega
city. Said city ordinance was period without the Secretary of Justice acting upon the appeal, the s lity
duly published on February aggrieved party may file the appropriate proceedings with the Regional Trial (Loc of
15, 2014 with effectivity Court. (UST) al tax
date on March 1, 2014. Taxe ordi
s) nan
b. What is the proper ce
procedural remedy and
applicable time periods for
challenging the ordinance?
 (4%)
"Mr. A, a citizen and
resident of the Philippines,
Sour
is a professional boxer. In a
ces
professional boxing match
of
held in 2013, he won prize Gros
Yes. Under the Tax Code, the income within and without of a resident citizen is Income inco
money in United States (US) s
7 taxable. Since Mr. A is a resident Filipino citizen, his income worldwide is Taxatio me 2015
dollars equivalent to Inco
taxable in the Philippines. (UST) n subj
P300,000,000."a) Is the me
ect
prize money paid to and
to
received by Mr. A in the US
tax
taxable in the Philippines?
Why? (2%)
"Mr. A, a citizen and
resident of the Philippines,
is a professional boxer.
Excl
In a professional boxing
usio
match held in 2013, he won No. Under the law, all prizes and awards granted to athletes in local
ns
prize money in and international sports competitions whether held in the Philippines or Gros
Income fro
United States (US) dollars abroad and sanctioned by their national sports association are excluded from s
8 Taxatio m 2015
equivalent to gross income. However, in this case, there is no showing that the Inco
n Gro
P300,000,000." boxing match was sanctioned by the Philippine National Sports Commission. me
ss
Therefore, the prize money is not excluded. (UST)
Inco
b) May Mr. A's prize money
me
qualify as an exclusion from
his gross
income? Why? (2%)
"Mr. A, a citizen and Tax
resident of the Philippines, atio
Gros
is a professional boxer. Mr. A may avail of tax credit against his tax liability in the Philippines Income n of
s
9 In a professional boxing for taxes paid in foreign countries. He has to signify in his income tax return Taxatio resi 2015
Inco
match held in 2013, he won his desire to avail the deduction. (UST) n den
me
prize money in t
United States (US) dollars citiz
 ens,
equivalent to
non
P300,000,000."
-
resi
c) The US already imposed
den
and withheld income taxes
t
from Mr. A's
citiz
prize money. How may Mr.
ens,
A use or apply the income
and
taxes he paid on his prize
resi
money to the US when he
den
computes his income tax
t
liability in the Philippines
alie
for 2013? (4%)
ns
Ms. C, a resident citizen,
bought ready-to-wear
goods from Ms. B, a non-
resident citizen. Yes, the income of Ms. B from the sale of ready-to-wear goods to Ms. C Situ
Gros
is taxable. A nonresident citizen is taxable only on income derived from Income s of
1 s
a) If the goods were sources within the Philippines. In line with the source rule of income Taxatio Tax 2015
0 Inco
produced from Ms. B's taxation, since the goods are produced and sold within the Philippines, n atio
me
factory in the Philippines, is Ms. B’s Philippine-sourced income is taxable in the Philippines. (UST) n
Ms. B's income from the
sale to Ms. C taxable in the
Philippines? Explain. (2%)
1 Ms. C, a resident citizen, Yes, but only a proportionate part of the income. Gains, profits and Income Gros Situ 2015
1 bought ready-to-wear income from the sale of personal property produced by the taxpayer Taxatio s s of
goods from Ms. B, a non- without and sold within the Philippines, shall be treated as derived partly n Inco taxa
resident citizen. from sources within and partly without the Philippines. (UST) me tion

b) If Ms. B is an alien
individual and the goods
were produced in her
factory in China, is Ms. B's
 income from the sale of the
goods to Ms. C taxable in
the Philippines? Explain.
(2%)
Mr. E and Ms. F are both
employees of AAA Corp.
They got married on
Ded
February 14, 2011. On
ucti
December 29, 2011, the
on
couple gave birth to Gros
Income fro
1 triplets. On June 25, 2013, Both Mr. E and Ms. F can claim for personal exemption up to P50,000.00. s
Taxatio m 2015
2 they had twins. What were (UST) Inco
n Gro
the personal me
ss
exemptions/deductions
Inco
which Mr. E and Ms. F could
me
claim in the following
taxable years:a) For 2010
(2%)
Mr. E and Ms. F are both
employees of AAA Corp.
They got married on
February 14, 2011. On Ded
December 29, 2011, the ucti
couple gave birth to on
Either Mr. E or Ms. F can claim for additional exemption of P25,000.00 each Gros
triplets. On June 25, 2013, Income fro
1 for their children. This is in addition to the personal exemption of P50,000.00 s
they had twins. What were Taxatio m 2015
3 which they can respectively claim. According to the Tax Code, only one of the Inco
the personal n Gro
spouses can claim for additional exemption for every dependent. (UST) me
exemptions/deductions ss
which Mr. E and Ms. F could Inco
claim in the following me
taxable years:

b) For 2011 (3%)

1 Mr. E and Ms. F are both Mr. E and Ms. F can claim for personal exemptions, respectively. In addition, Income Gros Ded 2015
 employees of AAA Corp.
They got married on
February 14, 2011. On
December 29, 2011, the ucti
couple gave birth to on
triplets. On June 25, 2013, any one of them, exclusively, can claim for the additional exemptions in fro
s
they had twins. What were relation to their four dependents amounting to P25,000.00 each. Under Taxatio m
4 Inco
the personal the Tax Code, an individual may claim up to four additional exemptions n Gro
me
exemptions/deductions in connection with his/her dependents. (UST) ss
which Mr. E and Ms. F could Inco
claim in the following me
taxable years:

c) For 2013 (2%)

BBB, Inc., a domestic
corporation, enjoyed a
particularly profitable year
in 2014. In June 2015, its
Board of Directors
approved the distribution
of cash dividends to its Gros Situ
A final withholding tax of ten percent (10%) shall be imposed upon the cash Income
1 stockholders. BBB, Inc. has s s of
dividends actually or constructively received by a resident citizen from BBB, Taxatio 2015
5 individual and corporate Inco taxa
Inc. (UST) n
stockholders. What is thf~ me tion
tax treatment of the cash
dividends received from
BBB, Inc. by the following
stockholders:

a)  A resident citizen (1%)

BBB, Inc., a domestic Gros Situ
A final withholding tax of twenty percent (20%) shall be imposed upon Income
1 corporation, enjoyed a s s of
the cash dividends actually or constructively received by a nonresident alien Taxatio 2015
6 particularly profitable year Inco taxa
engaged in trade or business from BBB, Inc. (UST) n
in 2014. In June 2015, its me tion
 Board of Directors
approved the distribution
of cash dividends to its
stockholders. BBB, Inc. has
individual and corporate
stockholders. What is thf~
tax treatment of the cash
dividends received from
BBB, Inc. by the following
stockholders:b) Non-
resident alien engaged in
trade or business (1%)
BBB, Inc., a domestic
corporation, enjoyed a
particularly profitable year
in 2014. In June 2015, its
Board of Directors
approved the distribution
of cash dividends to its
stockholders. BBB, Inc. has Gros Situ
A final withholding tax equal to twenty-five percent (25%) of the entire Income
1 individual and corporate s s of
income received from all sources within the Philippines, including the cash Taxatio 2015
7 stockholders. What is thf~ Inco taxa
dividends received from BBB, Inc. (UST) n
tax treatment of the cash me tion
dividends received from
BBB, Inc. by the following
stockholders:

c) Non-resident alien not

engaged in trade or busines
(1%)
BBB, Inc., a domestic Gros Situ
Income
1 corporation, enjoyed a Dividends received by a domestic corporation from another corporation, s s of
Taxatio 2015
8 particularly profitable year such as BBB, Inc., shall not be subject to tax. (UST) Inco taxa
n
in 2014. In June 2015, its me tion
 Board of Directors
approved the distribution
of cash dividends to its
stockholders. BBB, Inc. has
individual and corporate
stockholders. What is thf~
tax treatment of the cash
dividends received from
BBB, Inc. by the following
stockholders:

d) Domestic corporation
(1%)
BBB, Inc., a domestic
corporation, enjoyed a
particularly profitable year
in 2014. In June 2015, its
Board of Directors
A final withholding tax of fifteen percent (15%) is imposed on the amount of
approved the distribution
cash dividends received from BBB, Inc., subject to the tax sparing credit
of cash dividends to its
provision (Section 28(B)(5)(b), NIRC). The application of the tax sparing Gros Situ
stockholders. BBB, Inc. has Income
1 credit is that the country-domicile of the recipient corporation allows a s s of
individual and corporate Taxatio 2015
9 credit against the tax due from the non-resident foreign corporation. Inco taxa
stockholders. What is thf~ n
Otherwise, the applicable tax rate is thirty percent (30%) of the gross me tion
tax treatment of the cash
income received during each taxable year from all sources within the
dividends received from
Philippines. (UST)
BBB, Inc. by the following
stockholders:

e) Non-resident foreign
corporation (1%)
Indicate whether each
Income Inco
2 ofthe following individuals No, because a non-resident Filipino citizen is taxable only in income Inco
Taxatio me 2015
0 is required or not required sourced within the Philippines. (UST) me
n Tax
to file an income tax return:
 a) Filipino citizen residing
outside the Philippines on
his income from sources
outside the Philippines.
(1%)
Indicate whether each
ofthe following individuals
is required or not required
Income Inco
2 to file an income tax Yes because a resident alien is taxable for income derived from sources within Inco
Taxatio me 2015
1 return:b) Resident alien on the Philippines. (UST) me
n Tax
income derived from
sources within the
Philippines. (1%)
Indicate whether each
ofthe following individuals
is required or not required
to file an income tax return:
Yes. A resident citizen who is earning purely compensation income from two Income Inco
2 c) Resident citizen earning Inco
employers should file income tax return for not being qualified for substituted Taxatio me 2015
2 purely compensation me
filing. (UST) n Tax
income from two
employers within the
Philippines, whose income
taxes have been correctly
withheld. (1%)
2 Indicate whether each No. Underthe law, all minimum wage earners in the private and public sector Income Inco Inco 2015
3 ofthe following individuals shall be exempt from payment of income tax. (UST) Taxatio me me
is required or not required n Tax
to file an income tax return:

d) Resident citizen who falls

under the classification of
minimum wage earners.
 (1%)
Mr. H decided to sell the
house and lot wherein he
Taxa
and his family have lived for
tion
the past 10 years, hoping to
of
buy and move to a new
Mr. H may avail the exemption from capital gains tax on sale of principal resid
house and lot closer to his
residence by natural persons. Under the law, the following are the requisites: ent
children's school.
(1) proceeds of the sale of the principal residence have been fully utilized in citize Tax
Concerned about the
acquiring or constructing new principal residence within eighteen (18) ns, atio
capital gains tax that will be
calendar months from the date of sale or disposition; Income non- n of
2 due on the sale oftheir
(2) The historical cost or adjusted basis of the real property sold or disposed Taxatio resid capi 2015
4 house, Mr. H approaches
will be carried over to the new principal residence built or acquired; n ent tal
you as a friend for advice if
(3) The Commissioner has been duly notified, through a prescribed return, citize gain
it is possible for the sale
within thirty (30) days from the date of sale or disposition of the person’s ns, s
oftheir house to be
intention to avail of the tax exemption; and and
exempted from capital
(4) Exemption was availed only once every ten (10) years. (UST) resid
gains tax and the conditions
ent
they must comply with to
alien
avail themselves of said
s
exemption. How will you
respond? (4%)
2 KKK Corp. secured its As Ms. J’s supervisor, I will advise that KKK Corp. should prepare Income Taxa Tax 2015
5 Certificate of Incorporation payment for the regular corporate income tax. Under the Tax Code, Taxatio tion pay
from the Securities and Minimum Corporate Income Tax (MCIT) is applicable beginning on the fourth n of able
Exchange Commission on taxable year following the commencement of operation. Thus, in this case, dom
June 3, 2013. It commenced KKK Corp. will only apply MCIT starting taxable year 2017. (UST) estic
business operations on corp
August 12, 2013. In April orati
2014, Ms. J, an employee of ons
KKK Corp. in charge
ofpreparing the annual
income tax return ofthe
corporation for 2013, got
confused on whether she
 should prepare· payment
for the regular corporate
income tax or the minimum
corporate income tax.a) As
Ms. J's supervisor, what will
be your advice? (2%)
KKK Corp. secured its
Certificate of Incorporation
from the Securities and
Exchange Commission on
June 3, 2013. It commenced
Distinction as to taxpayer: Regular corporate income tax applies to all
business operations on
corporate taxpayers; while minimum corporate income tax applies to
August 12, 2013. In April
domestic corporations and resident foreign corporations.
2014, Ms. J, an employee of Taxa
Distinction as to rate: Regular income tax is 30%; while minimum corporate
KKK Corp. in charge tion
income tax is 2%.
ofpreparing the annual of
Distinction as to tax base: Regular corporate income tax is based on the Income Tax
2 income tax return ofthe dom
net taxable income, except nonresident foreign corporation which is Taxatio pay 2015
6 corporation for 2013, got estic
based on gross income; while minimum corporate income tax is based on n able
confused on whether she corp
gross income.
should prepare· payment orati
Distinction as to period of applicability: Regular corporate incometax is
for the regular corporate ons
applicable once the corporation commenced its operation, while MCIT is
income tax or the minimum
applicable beginning the fourth taxable year following the commencement
corporate income tax.
of operation. (UST)
b) What are the distinctions
between regular corporate
income tax and minimum
corporate income tax? (3%)
In 2012, Dr. K decided to Ded
Dr. K may opt to use the optional standard deduction (OSD) in lieu of
return to his hometown to Gros ucti
the itemized deduction. OSD is a maximum of forty percent (40%) of Income
2 start his own practice. At s on
gross receipts during the taxable year. Proof of actual expenses is not Taxatio 2015
7 the end of 2012, Dr. K Inco fro
required, but Dr. K shall keep such records pertaining to his gross receipts. n
found that he earned gross me m
(UST)
professional income in the Gro
 amount of Pl,000,000.00;
while he incurred expenses
amounting to P560,000.00
constituting mostly of his
office space rent, utilities,
and miscellaneous
expenses related to his
ss
medical practice. However,
Inco
to Dr. K's dismay, only
me
P320,000.00 of his
expenses were duly
covered by receipts. What
are the options available for
Dr. K so he could maximize
the deductions from his
gross income? (3%)
2 Mr. L owned several parcels The valuation of Mr. L’s gift to his children is the fair market value (FMV) of Donor’s Valu Valu 2015
8 of land and he donated a the property at the time of donation. It is the higher of the FMV as determined Tax ation atio
parcel each to his two by the Commissioner or the FMV as shown in the schedule of values fixed by of n of
children. Mr. L acquired the provincial or city assessors. In this case, for the purpose of computing gifts gifts
both parcels of land in 1975 donor’s tax, the proper valuation is the value prepared by the City Assessors mad mad
for ll200,000.00. At the amounting to P2,500,00.00 because it is higher than the FMV determined by e in e in
time of donation, the fair the CIR. (UST) prop pro
market value of the two erty pert
parcels of land, as y
determined by the CIR, was
112,300,000.00; while the
fair market value ofthe
same properties as shown
in the schedule of values
prepared by the City
Assessors was
112,500,000.00. What is
the proper valuation of Mr.
 L's gifts to his children for
purposes of computing
donor's tax? (3%)
In order that the claims against the estate may be deducted, the following are
Clai
the requisites:
ms
1.The liability represents a personal obligation of the deceased existing at the
State the conditions for agai
time of his death except unpaid obligations incurred incident to his death such
allowing the following as nst
as unpaid funeral expenses and unpaid medical expenses;
deductions from the gross Ded esta
2.The liability was contracted in good faith and for adequate and full
estate of a citizen or uctio te:
consideration in money or money’s worth;
2 resident alien for the Estate ns Req
3.The claim must be a debt or claim which is valid in law and enforceable in 2015
9 purpose o f imposing estate Tax from uisit
court;
tax: Estat es
4.The indebtedness must not have been condoned by the creditor or the
e for
action to collect from the decedent must not have prescribed.
a. Claims against the estate ded
At the time the indebtedness was incurred, the debt instrument was duly
(2%) ucti
notarized and if the loan was contracted within three (3) years before the
bilit
death of the decedent, the administrator or executor shall submit a statement
y
showing the disposition of the proceeds of the loan. (UST)
Me
dica
l
State the conditions for
exp
allowing the following as
Ded ens
deductions from the gross
All medical expenses incurred within one (1) year before the death of the uctio es:
estate of a citizen or
3 decedent which are duly substantiated with receipts, provided that the Estate ns Req
resident alien for the 2015
0 totalamount thereof, whether paid or unpaid, does not exceed Five Hundred Tax from uisit
purpose o f imposing estate
Pesos (P500,000.00). (UST) Estat es
tax:
e for
ded
b. Medical expenses (2%)
ucti
bilit
y
 Clai
In order that the claims against the estate may be deducted, the following are ms
the requisites:1.The liability represents a personal obligation of the deceased agai
State the conditions for existing at the time of his death except unpaid obligations incurred incident to nst
allowing the following as his death such as unpaid funeral expenses and unpaid medical expenses;2.The Ded esta
deductions from the gross liability was contracted in good faith and for adequate and full consideration uctio te:
3 estate of a citizen or in money or money’s worth;3.The claim must be a debt or claim which is valid Estate ns Req
2015
1 resident alien for the in law and enforceable in court;4.The indebtedness must not have been Tax from uisit
purpose o f imposing estate condoned by the creditor or the action to collect from the decedent must not Estat es
tax:a. Claims against the have prescribed.At the time the indebtedness was incurred, the debt e for
estate (2%) instrument was duly notarized and if the loan was contracted within three (3) ded
years before the death of the decedent, the administrator or executor shall ucti
submit a statement showing the disposition of the proceeds of the loan. (UST) bilit
y
Me
dica
l
State the conditions for
exp
allowing the following as
Ded ens
deductions from the gross
All medical expenses incurred within one (1) year before the death of the uctio es:
estate of a citizen or
3 decedent which are duly substantiated with receipts, provided that the Estate ns Req
resident alien for the 2015
2 totalamount thereof, whether paid or unpaid, does not exceed Five Hundred Tax from uisit
purpose o f imposing estate
Pesos (P500,000.00). (UST) Estat es
tax:
e for
ded
b. Medical expenses (2%)
ucti
bilit
y
State the conditions for In order that the claims against the estate may be deducted, the following are Ded Clai
allowing the following as the requisites: uctio ms
3 deductions from the gross 1.The liability represents a personal obligation of the deceased existing at the Estate ns agai
2015
3 estate of a citizen or time of his death except unpaid obligations incurred incident to his death such Tax from nst
resident alien for the as unpaid funeral expenses and unpaid medical expenses; Estat esta
purpose o f imposing estate 2.The liability was contracted in good faith and for adequate and full e te:
 consideration in money or money’s worth;
Req
3.The claim must be a debt or claim which is valid in law and enforceable in
uisit
court;
tax: es
4.The indebtedness must not have been condoned by the creditor or the
for
action to collect from the decedent must not have prescribed.
a. Claims against the estate ded
At the time the indebtedness was incurred, the debt instrument was duly
(2%) ucti
notarized and if the loan was contracted within three (3) years before the
bilit
death of the decedent, the administrator or executor shall submit a statement
y
showing the disposition of the proceeds of the loan. (UST)
Me
dica
l
State the conditions for exp
allowing the following as Ded ens
deductions from the gross All medical expenses incurred within one (1) year before the death of the uctio es:
3 estate of a citizen or decedent which are duly substantiated with receipts, provided that the Estate ns Req
2015
4 resident alien for the totalamount thereof, whether paid or unpaid, does not exceed Five Hundred Tax from uisit
purpose o f imposing estate Pesos (P500,000.00). (UST) Estat es
tax:b. Medical expenses e for
(2%) ded
ucti
bilit
y
In order that the claims against the estate may be deducted, the following are Clai
State the conditions for
the requisites: ms
allowing the following as
1.The liability represents a personal obligation of the deceased existing at the agai
deductions from the gross Ded
time of his death except unpaid obligations incurred incident to his death such nst
estate of a citizen or uctio
as unpaid funeral expenses and unpaid medical expenses; esta
3 resident alien for the Estate ns
2.The liability was contracted in good faith and for adequate and full te: 2015
5 purpose o f imposing estate Tax from
consideration in money or money’s worth; Req
tax: Estat
3.The claim must be a debt or claim which is valid in law and enforceable in uisit
e
court; es
a. Claims against the estate
4.The indebtedness must not have been condoned by the creditor or the for
(2%)
action to collect from the decedent must not have prescribed. ded
 At the time the indebtedness was incurred, the debt instrument was duly
ucti
notarized and if the loan was contracted within three (3) years before the
bilit
death of the decedent, the administrator or executor shall submit a statement
y
showing the disposition of the proceeds of the loan. (UST)
Me
dica
l
State the conditions for
exp
allowing the following as
Ded ens
deductions from the gross
All medical expenses incurred within one (1) year before the death of the uctio es:
estate of a citizen or
3 decedent which are duly substantiated with receipts, provided that the Estate ns Req
resident alien for the 2015
6 totalamount thereof, whether paid or unpaid, does not exceed Five Hundred Tax from uisit
purpose o f imposing estate
Pesos (P500,000.00). (UST) Estat es
tax:
e for
ded
b. Medical expenses (2%)
ucti
bilit
y
3 Explain the principles of a The principles of a sound tax system are the following: General Princ Fisc 2015
7 sound tax system. (3%) a.Fiscal adequacy which means that the sources of revenue should be Principl iples al
sufficient to meet the demands of public expenditures; es of of ade
b.Equality or theoretical justice which means that the tax burden should be Taxatio Soun qua
proportionate to the taxpayer’s ability to pay (this is the so-called ability to n d tax cy,
pay principle); and syste adm
c.Administrative feasibility which means that the tax law should be m inist
capable of convenience, just and effective administration. (UST) rativ
e
feas
ibilit
y,
the
ore
tical
justi
 ce
Double taxation in the strict sense pertains to the direct double
Differentiate between taxation. This means that the taxpayer is taxed twice by the same taxing General Doct
Dou
double taxation in the strict authority, within the same taxing jurisdiction, for the same property and Principl rines
3 ble
sense and in a broad sense same purpose.On the other hand, double taxation in broad sense es of in 2015
8 taxa
and give an example pertains to indirect double taxation. This extends to all cases in which there Taxatio Taxa
tion
ofeach. (4%) is a burden of two or more impositions. It is the double taxation other than n tion
those covered by direct double taxation. (UST)
The following shall be considered as “de minimis” benefits:

1.Monetized unused vacation leave credits of private employees not exceeding 10

3 Give three (3) examples of
9 de minimis benefits. (4%)
days during the year;
2.Monetized unused vacation and sick leave credits paid to government officials
and employees, regardless of the number of days;
3.Medical cash allowance to dependents of employees, not exceeding P750 per
employee per semester or P125 per month; Exe
4.Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to mp
not more than P1,500; tion
5.Uniform and clothing allowance not exceeding P5,000 per annum; fro
6.Actual medical assistance not exceeding P10,000 per annum; General Doct
m
7.Laundry allowance not exceeding P300 per month; Principl rines
taxa
8.Employees achievement awards, e.g., for length of service or safety achievement, es of in 2015
which must be in the form of a tangible personal property other than cash or
tion:
Taxatio Taxa
gift certificate, with an annual monetary value not exceeding P10,000 received by De
n tion
the employee under an established written plan which does not discriminate in mini
favor of highly paid employees; mis
9.Gifts given during Christmas and major anniversary celebrations not exceeding ben
P50,000 per employee per annum; efits
10.Daily meal allowance for overtime work and night/graveyard shift not
exceeding 25% of the basic minimum wage on a per region basis;
11.Benefits received by an employee by virtue of a collective bargaining
agreement (CBA) and productivity incentive schemes provided that the total annual
monetary value received from both CBA and productivity incentive schemes
combined do not exceed ten thousand pesos (P10,000.00) per employee per
taxable year. (UST)
 De minimis benefits are facilities, and privileges furnished or offered by Exe
an employer to his employees, which are not considered as mp
compensation subject to income tax and consequently to withholding tax, tion
if such facilities or privileges are of relatively small value and are offered or fro
General Doct
furnished by the employer merely as means of promoting the health, m
What are de minimis Principl rines
4 goodwill, contentment, or efficiency of his employees.The excess over the taxa
benefits and how are these es of in 2015
0 de minimis limit prescribed shall be considered, along with the “other tion:
taxed? Taxatio Taxa
benefits” under Section 32(B)(7)(e)(iv), NIRC, in determining whether or not De
n tion
the P82,000 threshold has been exceeded. Any excess over the de minimis mini
ceiling may be exempt if itis covered by the unused portion of the mis
P82,000.00 non-taxable “other benefits”. Otherwise, any amount in ben
excess of the P82,000.00 threshold becomes subject to tax. (UST) efits
1 Briefly explain the The following doctrines, explained: General Doct Life 2016
following doctrines: Principl rines bloo
lifeblood doctrine; Lifeblood doctrine - Without revenue raised from taxation, the government es of in d
necessity theory; will not survive, resulting in detriment to society. Without taxes, the Taxatio Taxa The
benefits received
government would be paralyzed for lack of motive power to activate and n tion ory;
principle; and, doctrine
of symbiotic operate it (CIR v. Algue, Inc. 158 SCRA 9 [1988]) Nec
relationship. (5%) Necessity theory - The exercise of the power to tax emanates from necessity, cess
because without taxes, government cannot fulfill its mandate of promoting ity
the general welfare and well being of the people (CIR v. Bank of the Philippine The
Islands, 521 SCRA 373 [2007]) ory;
Benefits received principle - Taxpayers receive benefits from taxes through the Ben
protection the State affords to them. For the protection they get arises their efits
obligation to support the government through payment of taxes (CIR v. Algue, Rec
Inc, 158 SCRA 9 [1988]) eive
Doctrine of symbiotic relationship - Taxation arises because of the reciprocal d
relation of protection and support between the state and taxpayers. The state Prin
gives protection and for it to continue giving protection, it must be supported cipl
by the taxpayers in the form of taxes (CIR v. Algue, Inc. 15 SCRA 9 [1988]). e;
and
Doc
trin
 e of
Sym
bioti
c
Rela
tion
ship
The following cases are under the exclusive appellate hurisdiction of the Court
of Tax Appeals.A. Exclusive appellate jurisdiction to review by appeal:1.
Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the NIRC or other
laws administered by the BIR;2. Inaction of the Commisioner of Internal
Revenue in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other matters
arising under the NIRC or other laws administered by the BIR, where the NIRC
provides a specific period of action, in which case the inaction shall be Excl
deemed a denial;3. Decisions, orders or resolutions of the RTC in local tax usiv
State at least five (5) cases originally decided or resolved by them in the exercise of their original or Cour e
cases under the appellate jurisdiction;4. Decisions of the Commissioner of Customs in cases Tax t of App
exclusiveappellate
2 involving liability of customs duties, fees or other money charges, seizure, Remedi Tax ellat 2016
jurisdiction of the Court
of Tax Appeals (CTA). detention or release of property affected, fines, forfeituresor other penalties es App e
(5%) in relation thereto, or other matters arising under the Customs Law or other eals Juris
laws administered by the Bureau of Customs; and5. Decisions of the Central dicti
Board of Assessment Appeals in th eexercise of its appellate jurisdiction over on
cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals.6. Desicions of the
Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs adverse to the
Government under Sec. 2315 of the Tariff and Customs Code; and7. Decisions
of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture, in th ecase of
agricultural product, commodity or article, involving dumping and
countervailing duties under Sec. 301 and 302, respectively, of the Tariff and

Rakham operates the
lending company that
made a loan to Alfonso
in the amount of
Pl20,000.00 subject of a
promissory note which is
due within one (1) year
from the note's
issuance. Three years
after the loan became
3 Taxatio
due and upon
information that Alfonso
is nowhere to befound,
Rakham asks you for
advice on how to treat
the obligation as "bad
debt." Discuss the
requisites for
deductibility of a "bad
debt?" (5%)
The City of Maharlika
passed an ordinance
imposing a tax on any
4 collected by the national governemnt is entirely different form the tax on sale
sale or transfer of real
property located within
the city at a rate of fifty
Customs Code, and safeguard measures under R.A. No. 8800, where either
party may appeal the decision to impose or not impose said duties.B. Exclusive
appellate jurisdiction in criminal offenses:1. Over appeals from the judgments,
resolutions or orders of the Regional Trial Courts in tax cases originally
decided by them, in their respective territorial jurisdictaion; and2. Over
petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases
originallydecided by the appellate Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in their respective jurisdiction.(NOTE:
It is recommended that any five (5) of the above-enumerated cases be given
credit)
I will advise Rakham that the obligation of Alfonso may now be considered as
bad debts for having met the yardstick of a debt which had become worthless.
In oreder to be considered worthless, the taxpayer should establish that
during the year from which a deduction is sought, a situation developed as a
reult of which it became evident in the exercise of sound, objective business Allo
judgment that there remained no practical, but only vague theoretical, wabl
Income Bad
prospect that the debt would ever be paid [Collector of Internal Revenue v. e
Deb 2016
Goodrich International Rubber Co., 21 SCRA 1336 (1967)]. A bad debt is Ded
n t
deductible if it complies with the following requisites:a. There must be a valid uctio
and subsisting debt.b. The obligation is connected with the taxpayer's trade or ns
business and is not between related parties.c. There is an actual
acsertainment that the debt is worthless.d. The debt is charged-off during the
taxable year. A partial write-off is not allowed (PRC v. CA, 256 SCRA 667
[1996).
I would argue that the City is allowed to levy a tax on transfer of real property Local Sale
Capit
ownership (Sec. 135, LGC). The capital gains tax which is an income tax Govern of
al
ment real 2016
Gain
or transfer imposed by the ordinance. The tax imposed by th eordinance not Taxatio pro
s Tax
being in the nature of an income tax, the imposition of the income taxby the n pert
 percent (50%) of one
percent (1%) of the
total consideration of
the transaction. Jose
sold a parcel of land in
the city, which he
inherited from his
deceased parents, and
refused to pay the
aforesaid tax. He
instead filed a case
asking that the national governemnt will not pre-empt the tax sought to be imposed by the
ordinance be declared ordinance. I would further argue that the imposition by the national
null and void since the
governemnt of a tax will pre-empt Local Government Units (LGU) only if there y
tax it imposed can only
be collected by the is no specific provision under the Local Governemnet Code giving said power
national government, as (Bulacan v. CA, 299 SCRA 442 [1998]).
in fact he has paid the
Bureau of Internal
Revenue (BIR) the
required capital gains
tax. If you were the City
Legal Officer of
Maharlika, what
defenses would you
raise to sustain the
validity of the
ordinance? (5%)
Sure Arrival Airways Princ Prin
(SAA) is a foreign No. The activity which gives rise to the income is the sale of ticket in the
iple cipl
corporation, organized Philippines, hence, the income from sale of tickets is an income derived from
General of e of
under the laws of the Philippine sources which is subject to the Philippine income tax. Accordingly,
Principl Terri Terr
Republic of Nigeria. Its there is no violation of the principle of territoriality in taxation (Air Canada v.
5 es of toria itori 2016
commercial airplanes do CIR, 778 SCRA 131, [2016])[Note: As the case which is the basis of the answer
not operate within Taxatio lity ality
was decided beofre the cut-off date for the 2016 Bar Examinations, it is
Philippine territory, or n in in
recommended that this question be considered a bonus question, with any
service passengers Taxa Tax
answer to be given full credit].
embarking from tion atio
Philippine airports. The n
firm is represented in
the Philippines by its
general agent,
Narotel.SAA sells
airplane tickets through
Narotel, and these
tickets are serviced by
SAA airplanes outside
the Philippines. The total
sales of airplane tickets
transacted by Narotel
for SAA in 2012
amounted to
Pl0,000,000.00. The
Commissioner of
Internal Revenue (CIR)
assessed SAA deficiency
income taxes at the rate
of 30% on its taxable
income, finding that
SAA's airline ticket sales
constituted income
derived from sources
within the
Philippines.SAA filed a
protest on the ground
that the alleged
deficiency income taxes
should be considered as
income derived
exclusively from sources
outside the Philippines
since SAA only serviced
passengers outside
Philippine territory. It,
thus, asserted that the
imposition of such
 income taxes violated
the principle of
territoriality in
taxation.Is the theory of
SAA tenable? Explain.
(5%)
6 Mapagbigay Corporation No. The courtesy dicounts given to rank and file employees are considered "de Income Allo De 2016
grants all its employees minimis benefits" falling under the category of other facilities and privileges Taxatio wabl mini
(rank and file, furnished or offered by an employer to his employees which are of relatively n e mis
supervisors, and small value intended to promote the health, goodwill, contentment or Ded Ben
managers) 5% discount
efficiency of the employee. These benfitsare not considered as compensation uctio efits
of the purchase price of
its products. During an subject to income tax and consequently to th ewitholding tax (Sec. 2.78.1 of ns
audit investigation, the RR No. 10-2008). If these "de minimis benefits" are furnished to supervisors
BIR assessed the and managers, the same are also exempt from the fringe benefits tax (RRNo.
company the 3-98;Sec. 33, NIRC).
corresponding tax on
the amount equivalent
to the courtesy discount
received by all the
employees, contending
that the courtesy
discount is considered
as additional
compensation for the
rank and file employees
and additional fringe
benefit for the
supervisors and
managers. In its
defense, the company
argues that the discount
given to the rank and
file employees is a de
minimis benefit and not
subject to tax. As to its
managerial employees,
it contends that the
 discount is nothing more
than a privilege and its
availment is restricted.

Is the BIR assessment

correct? Explain. (5%)
7 Philippine National Yes. The properties of PNR are properties of public dominion owned by the Local Tax Real 2016
Railways (PNR) operates Republic of the Philippines, which are exempt from real property tax (Sec, 234, Govern Exe Pro
the rail transport of LGC). In Manila International Airport Authority v. CA (495 SCRA 591, [2006]), ment mpti pert
passengers and goods the Supreme Court held that MIAA is a government instrumentality and is not Taxatio ons y
by providing train
a government-owned or controlled corporation, therfore the real properties n Tax
stations and freight
customer facilities from owned by MIAA are not subject to real estate tax, except when MIAA leases its
Tutuban, Manila to the real property to private parties. IN the said case, PNR was cited as an example
Bicol Province. As the of such government instrumentality which is deemed exempt.
operator of the railroad
transit, PNR administers
the land, improvements
and equipment within its
main station in Tutuban,
Manila.Invoking Section
193 of the Local
Government Code (LGC)
expressly withdrawing
the tax exemption
privileges of
government-owned and
controlled corporations
upon the effectivity of
the Code in 1992, the
City Government of
Manila issued Final
Notices of Real Estate
Tax Deficiency in the
amount of
P624,000,000.00 for the
taxable years 2006 to
2010. On the other
 hand, PNR, seeking
refuge under the
principle that the
government cannot tax
itself, insisted that the
PNR lands and buildings
are owned by the
Republic.Is the PNR
exempt from real
property tax? Explain
your answer. (5%)
8 In 2011, Solar Computer No. The transfer is not a taxable donation because there is no divestment of Donor's "gift "gift 2016
Corporation (Solar) ownership by the transferor. The purpose of the transfer is simply to allow Tax tax" tax"
purchased a proprietary David to avail of the facilities of the Club. The execution of a "Deed of
membership share Declaration of Trust and Assignment of Shares" where the absolute ownership
covered by Membership
by Solar of the share is acknowledged would show that there is no
Certificate No. 8 from
the Mabuhay Golf Club, relinquishment of ownership by Solar. The transfer being merely a transfer in
Inc. for P500,000.00. On form but not in substance, the same is not subject to gift tax.
December 27, 2012, it
transferred the same to Alternative Answer:
David, its American
consultant, to enable The assignment is a "gift" subject to gift tax. The absence of donative intent
him to avail of the does not exempt the sales of stock transaction from donor's tax since Sec. 100
facilities of the Club. of the NIRC categorically states that the amount by which the fair market
David executed a Deed
value of the property exceeded that value of the consideration shall be
of Declaration of Trust
and Assignment of
deemed a gift. Thus, even if there is no actual donation, the difference in price
Shares wherein he is considered a donation by fiction of law (Philam Life and General Insurance
acknowledged the Co. v. Sec. of Finance and CIR, 741 SCRA 579 [2014]).
absolute ownership of
Solar over the share;
that the assignment was
without any
consideration; and that
the share was placed in
his name because the
Club required it to be
 done. In 2013, the value
of the share increased to
P800,000.00.

Is the said assignment a

"gift" and, therefore,
subject to gift tax?
Explain. (5%)
Proc
Proc
edu
edur
In order to be entitled to a refund/tax credit of excess input VAT attributable re
e on
to zero-rated or effectively zero-rated sales, the following requisites must be on
Explain the procedure how
complied with:1. The claim for refund must be filed with the Comissioner how
for claiming refunds or to
tax credits of input within 2 years counted from the last day of the quarter when the sero-rated to
clai
Value Added Tax (VAT) sale was made (Sec. 112, NIRC);2. The claim for refund must be accompanied clai
m
for zero-rated or by a statement under oath that all documents to support the claim has been m
Value- refu
effectively zero-rated submitted at the time of filig of the claim for refund (RMC 54-14);3. The refu
9 Added nd/t 2016
sales under Sec. 112 of Comissioner must decide on the claim within 120 days from date of filing and nd/t
the National Internal Tax ax
the adverse decision is appealable to the CTAwithin 30 days from receipt (Sec. ax
Revenue Code (NIRC) credi
112, NIRC, CIR v. Aichi Forging of Asia, Inc., 632 SCRA 422 [2010]).4. If no cred
from the filing of an t of
decision is made within the 120-day period, there is a deemed denial or it of
application with the CIR exce
adverse decision which is appealable to the CTA within 30 days from the lapse exce
up to the CTA. (2.5%) ss
of the 120-day period (Sec. 112, NIRC; Sec. 7(a)(1), RA 1125 as amended by RA ss
inpu
9289); inpu
t
t
VAT
VAT
Explain the procedure
The procuder for claiming refunds of tax erroneously or illegally collected are Proc Proc
for claiming refunds of the following: edur edu
tax erroneously or 1. A written claim for refund must be filed with the Commissioner within two e for re
1 illegally collected under
years from date of payment of the tax (Sec. 204, NIRC) Tax clai for
Sec. 229 of the NIRC 2. A decision of the Commissioner denying the claim, is appealable to the CTA Remedi ming clai 2016
0 from the filing of the
within 30 days from receipt therof or within two years from date of payment, es refu min
claim for refunds with whichever comes first (Sec. 229, NIRC; Sec. 7(a)(1), RA 1125 as amenden by RA nds g
the CIR up to the CTA. 9282); of refu
(2.5%)
3. If no decission is made by the COmmissioner, the aggrieved taxpayer msut tax nds
 of
tax
erro
erro
neou
neo
sly
usly
consider the inaction as a denial and appeal to the CTA must be filed before or
or
the lapse of two years counted from date of payment (Sec. 229, NIRC) iileg
iileg
ally
ally
colle
coll
cted
ecte
d
1 Congress issued a law The effect of coverting the 20% discount from a "tax credit" to a "tax General Tax 20% 2016
1 allowing a 20% discount deduction" is that the tax benefit enjoyed by sellers of goods and services to Principl Cred Seni
on the purchases of senior citizens is effectively reduced. A tax credit reduces the tax liability while es of it or
senior citizens from, a tax deduction merely reduces the tax base. Taxatio Citiz
among others,
n en
recreation centers. This
20% discount can then Under the tax credit scheme, the establishments are paid back 100% of the Disc
be used by the sellers as discount they give to senior citizens while under the tax deduction scheme, oun
a "tax credit." At the they are only paid back about 32% of the 20% discount granted to senior t
initiative of BIR, citizens.
however, Republic Act
No. (RA) 9257 was
enacted amending the
treatment of the 20%
discount as a "tax
deduction." Equity
Cinema filed a petition
with the RTC claiming
that RA 9257 is
unconstitutional as it
forcibly deprives sellers
a part of the price
without just
compensation.

[a] What is the effect of

 converting the 20%
discount from a "tax
credit" to a "tax
deduction"? (2.5%)
Congress issued a law
allowing a 20% discount
on the purchases of
senior citizens from,
among others,
recreation centers. This
20% discount can then
be used by the sellers as
a "tax credit." At the
initiative of BIR,
however, Republic Act 20%
No. (RA) 9257 was Seni
General
enacted amending the I will decide in favor of the Constitutionality of the law. The 20% discount as or
Principl Tax
1 treatment of the 20% well as the tax deduction sheme is a valid exercise of the police power of the Citiz
es of Cred 2016
2 discount as a "tax State (Manila Park Inc. v. Department of Social Welfare and Development, 711 en
deduction." Equity Taxatio it
SCRA 302 [2013]). Disc
Cinema filed a petition n
oun
with the RTC claiming t
that RA 9257 is
unconstitutional as it
forcibly deprives sellers
a part of the price
without just
compensation.b] If you
are the judge, how will
you decide the case?
Briefly explain your
answer. (2.5%)
Soaring Eagle paid its No. The assessment is invalid because the TCC's used by Soaring Eagle are
excise tax liabilities with valid and effective. A TCC is a n undertaking by the government through the Tax Asse Asse
1 Tax Credit Certificates
BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of Remedi ssme ssm 2016
3 (TCCs) which it
purchased through the tax credit from either an overpayment of income taxes, a direct benefit es nt ent
One Stop Shop Inter- granted by law or other sources and instances granted by law such as on
Agency Tax Credit
Center (Center) of the
Department of Finance.
The Center is a
composite body of the
DOF, BIR, BOC and the
BOI. The TCCs ~ere
accepted by the BIR as
payments. A year after,
the BIR demanded the
payment of alleged
deficiency excise taxes
on the ground that
Soaring Eagle is not a
qualified transferee of
the TCCs it purchased
from other BOI-
registered companies. specific unused input taxes and excise taxes on certain goods. As such, tax
The BIR argued that the credit is transferable in accordance with pertinent laws, rules, and regulations
TCCs are subject to (Pilipinas Shell Petroleum Corp. v. Commissioner of INternal Revenue, 541
post-audit as a SCRA 316 [2007]).
suspensive condition. On
the other hand, Soaring
Eagle countered that it
is a buyer in good faith
and for value who
merely relied on the
Center's representation
of the genuineness and
validity of the TCCs. If it
is ordered to pay the
deficiency, Soaring
Eagle claims the same is
confiscatory and a
violation of due process.
Is the assessment
against Soaring Eagle
valid? Explain. (5%)
1 The Philippine-British No. The Medical Arts Center is an integral part of the Hospital and should be Local Asse Spe 2016
4 Association, Inc. classified for assessmnet purposes as "special". The fact alone that the doctors Govern ssme cial
(Association) is a non- holding clinics in the Center are those duly accredited by the Association who ment nt Clas
stock, non-profit owns the Hospital, and these doctors are the ones who can treat the Taxatio sific
organization which owns
Hospital's patients confined in it, takes away the said Medical Arts Center from n atio
the St. Michael's
Hospital (Hospital). Sec. being categorized as "commercial" since a tertiary hospital is required by law nVS
216 in relation to Sec. to have a pool of physicians who comprise the required medical departments Com
215 of the LGC classifies in various medical fields (City Assessor of Cebu City v. Association of Benevola mer
all lands, buildings and de Cebu, Inc., 524 SCRA 128 [2007]). cial
other improvements Clas
thereon actually, sific
directly, and exclusively atio
used for hospitals as n
"special." A special
classification prescribes
a lower assessment than
a commercial
classification.Within the
premises of the Hospital,
the Association
constructed the St.
Michael's Medical Arts
Center (Center) which
will house medical
practitioners who will
lease the spaces therein
for their clinics at
prescribed rental rates.
The doctors who treat
the patients confined in
the Hospital are
accredited by the
Association.The City
Assessor classified the
Center as "commercial"
instead of "special" on
the ground that the
 Hospital owner gets
income from the lease of
its spaces to doctors
who also entertain out-
patients. Is the City
Assessor correct in
classifying the Center as
"commercial?" Explain.
(5%)
1 Pursuant to Sec. 11 of No. Since World Health Organization (WHO), the contractee, is Value- Gran Purs 2016
5 the "Host Agreement" exempt from direct and indirect taxes pursuant to an international agreement Added t of uant
between the United where the Philippines is a signatory, the exemption from indirect taxes should Tax Exe tp
Nations and the mean that the entity or person exempt is the contractor itself because the mpti Host
Philippine government,
manifest intention of the Agreement is to exempt the contractor so that no on Agr
it was provided that the
World Health tax may be shifted to the contractee (CIR v. John Gotamco & SOns, Inc. 148 eem
Organization (WHO), "its SCRA 36 [1987]). The immunity of WHO from indirect taxes extends to th ent
assets, income and econtractor by treating the sale of service as effectively zero-rated when teh
other properties shall be law provided that - "services rendered to persons or entities whose exemption
: a) exempt from all under special laws or international agreements to which the Philippines is a
direct and indirect signatory effectively subjects the supply of such service to zero percent (0%)
taxes." Precision rate" (Section 108(B)(3), NIRC). Accordingly the BIR is wrong in assessing the
Construction 12% VAT from the contractor, Precision Construction Corporation.
Corporation (PCC) was
hired to construct the
WHO Medical Center in
Manila. Upon completion
of the building, the BIR
assessed a 12% VAT on
the gross receipts of
PCC derived from the
construction of the WHO
building. The BIR
contends that the 12%
VAT is not a direct nor
an indirect tax on the
WHO but a tax that is
primarily due from the
 contractor and is
therefore not covered by
the Host Agreement.
The WHO argues that
the VAT is deemed an
indirect tax as PCC can
shift the tax burden to
it. Is the BIR correct?
Explain. (5%)
1 Lucky V Corporation Yes, API's Petition for Review will prosper. The Supreme Court held in the case Tax clai clai 2016
6 (Lucky) owns a IO- of San Roque that, as an exception to the mandatory 120+30 day period, a Remedi m m
storey building on a judicial claim for VAT refund which was filed with the CTA before the lapse of es for for
2,000 square meter lot the 120-day perioed is considered to have been timely made of wuch filing tax tax
in the City of Makati. It
occurred on or after Dec. 10, 2003 (date of issuance of BIR Ruling No. DA-489- refu refu
sold the lot and building
to Rainier. for P80 03) but before Oct 6, 2010 ( promulgation of Aichi Case). BIR Ruling DA-489- nd nd
million. One month 03, qs a general interpretative rule may be relied upon by taxpayers, expressly
after, Rainier sold the lot statung that the taxpayer need not wait for the lapse of the 120-day period
and building to Healthy before it could seek judicial relief with CTA by way of Petition for Review.
Smoke Company (HSC)
for P200 million. Lucky
filed its annual tax
return and declared its
gain from the sale of the
lot and building in the
amount of
P750,000.00.An
investigation conducted
by the BIR revealed that
two months prior to the
sale of the properties to
Rainier, Lucky received
P40 million from HSC
and not from Rainier.
Said amount of P40
million was debited by
HSC and reflected in its
trial balance as "other
 inv. - Lucky Bldg." The
month after, another
P40 million was reflected
in HSC's trial balance as
"other inv. - Lucky
Bldg." The BIR
concluded that there is
tax evasion since the
real buyer of the
properties of Lucky is
HSC and not Rainier. It
issued an assessment
for deficiency income
tax in the amount of P79
million against Lucky.
Lucky argues that it
resorted to tax
avoidance or a tax
saving device, which is
allowed by the NIRC and
BIR rules since it paid
the correct taxes based
on its sale to Rainier. On
the other hand, Rainier
and HSC also paid the
prescribed taxes arising
from the sale by Rainier
to HSC. Is the BIR
correct in assessing
taxes on Lucky? Explain.
(5%)
Peter is the Vice-
President for Sales of
1 Golden Dragon Realty
Conglomerate, Inc.         2016
7 (Golden Dragon). A
group of five (5) foreign
investors visited the
 country for possible
investment in the
condominium units and
subdivision lots of
Golden Dragon. After a
tour of the properties for
sale, the investors were
wined and dined by
Peter at the posh
Conrad's Hotel at the
cost of Pl 50,000.00.
Afterward, the investors
were brought to a party
in a videoke club which
cost the company
P200,000.00 for food
and drinks, and the
amount of P80,000.00
as tips for business
promotion officers.
Expenses at Conrad's
Hotel and the videoke
club were receipted and
submitted to support the
deduction for
representation and
entertainment expenses.
Decide if all the
representation and
entertainment expenses
claimed by Golden
Dragon are deductible.
Explain. (5%)
Amor Powers, Inc. (API)
1 is a domestic
corporation registered         2016
8 with the BIR as a value-
added taxpayer. API
incurred excess input
VAT in the amount of
P500,000,000.00 on
August 3, 2008. Hence,
it filed with the BIR an
administrative claim for
the refund or credit of
these input taxes on
August 15, 2010.
Without waiting for the
CIR to act on its claim,
API filed a Petition for
Review with the CT A on
September 15, 2010
before the lapse of two
years after the close of
the taxable quarter
concerned.In its
Comment on the
Petition, the CIR argues
that API's Petition
should be dismissed as
it was filed before the
lapse of the 120-day
period given to the CIR
by Sec. 112(D) of the
NIRC, which became
effective on January 1,
1998. For the CIR, the
120- day period is
mandatory and
jurisdictional so that any
suit filed before its
expiration is premature
and, therefore,
dismissible.API, on the
other hand, invokes BIR
Ruling No. DA-489-03
 issued by the CIR on
December 10, 2003 in
answer to a query posed
by the Department of
Finance regarding the
propriety of the actions
taken by Lazi Bay
Resources Development,
Inc., which filed an
administrative claim for
refund with the CIR and,
before the lapse of the
120-day period from its
filing, filed a judicial
claim with the CTA. BIR
Ruling No. DA-489-03
stated that the
taxpayer-claimant need
not wait for the lapse of
the 120-day period
before it could seek
judicial relief with the
CTA.Will API's Petition
for Review prosper?
Decide with reasons.
(5%)
The requisites for a valid
waiver of the three-year
(3-year) prescriptive
period for the BIR to
assess taxes due in the
1 taxable year are
        2016
9 prescribed by Revenue
Memorandum Order
(RMO) No. 20-90:1. The
waiver must be in the
proper form prescribed
by RMO 20-90.2. The
waiver must be signed
by the taxpayer himself
or his duly authorized
representative. In the
case of a corporation,
the waiver must be
signed by any of its
responsible officials. In
case the authority is
delegated by the
taxpayer to a
representative, such
delegation should be in
writing and duly
notarized.3. The waiver
should be duly
notarized.4. The CIR or
the revenue official
authorized by him must
sign the waiver
indicating that the BIR
has accepted and
agreed to the waiver.
The date of such
acceptance by the BIR
should be indicated.
However, before signing
the waiver, the CIR or
the revenue official
authorized by him must
make sure that the
waiver is in the
prescribed form, duly
notarized, and executed
by the taxpayer or his
duly authorized
representative.5. Both
the date of execution by
the taxpayer and date of
acceptance by the
Bureau should be before
the expiration of the
period of prescription or
before the lapse of the
period agreed upon in
case a subsequent
agreement is
executed.6. The waiver
must be executed in
three copies, the original
copy to be attached to
the docket of the case,
the second copy for the
taxpayer and the third
copy for the Office
accepting the waiver.
The fact of receipt by
the taxpayer of his/her
file copy must be
indicated in the original
copy to show that the
taxpayer was notified of
the acceptance of the
BIR and the perfection
of the agreement.After
being assessed by the
BIR with alleged
deficiency income taxes,
VVV Corporation (VVV)
through Enrique, its
President, executed a
waiver of the
prescriptive period. The
waiver was signed by
Revenue District Officer
(RDO) Alfredo. However,
 the waiver did not state
the date of execution by
the taxpayer and date of
acceptance by the BIR.
Enrique was also not
furnished a copy of the
waiver by the BIR.VVV
claims that the waiver is
void due to non-
compliance with RMO
20-90. Hence, the
period for assessment
had already prescribed.
Moreover, since the
assessment involves P2
million, the waiver
should have been signed
by the CIR and instead
of a mere RDO. On the
other hand, the BIR
contends that the
requirements ofRMO No.
20-90 are merely
directory; that the
execution of the waiver
by VVV was a
renunciation of its right
to invoke prescription
and that the
government cannot be
estopped by the
mistakes committed by
its revenue officers. Is
VVV liable? Explain.
(5%)

2 Henry, a U.S.
naturalized citizen, went         2016
0 home to the Philippines
to reacquire Philippine
citizenship under RA
9225. His mother left
him a lot and building in
Makati City and he
wants to make use of it
in his trading business.
Considering that he
needs money for the
business, he wants to
sell his lot and building
and make use of the
consideration. However,
the lot has sentimental
value and he wants to
reacquire it in the
future. A friend of Henry
told him of the "sale-
leaseback transaction"
commonly used in the
U.S., which is also used
for tax reduction. Under
said transaction, the lot
owner sells his property
to a buyer on the
condition that he leases
it back from the buyer.
At the same time, the
property owner is
granted an option to
repurchase the lot on or
before an agreed date.
Henry approaches you
as a tax lawyer for
advice.Explain what tax
benefits, if any, can be
obtained by Henry and
the buyer from the sale-
 leaseback transaction?
(5%)
Jennifer is the only
daughter of Janina who
was a resident in Los
Angeles, California,
U.S.A. Janina died in the
U.S. leaving to Jennifer
one million shares of
Sun Life (Philippines),
Inc., a corporation
organized and existing
under the laws of the
Republic of the
Philippines. Said shares
were held in trust for
2 Janina by the Corporate
        2016
1 Secretary of Sun Life
and the latter can vote
the shares and receive
dividends for Janina.
The Internal Revenue
Service (IRS) of the U.S.
taxed the shares on the
ground that Janina was
domiciled in the U.S. at
the time of her death.

[a] Can the CIR of the

Philippines also tax the
same shares? Explain.
(2.5%)
Jennifer is the only
daughter of Janina who
2 was a resident in Los
        2016
2 Angeles, California,
U.S.A. Janina died in the
U.S. leaving to Jennifer
 one million shares of
Sun Life (Philippines),
Inc., a corporation
organized and existing
under the laws of the
Republic of the
Philippines. Said shares
were held in trust for
Janina by the Corporate
Secretary of Sun Life
and the latter can vote
the shares and receive
dividends for Janina.
The Internal Revenue
Service (IRS) of the U.S.
taxed the shares on the
ground that Janina was
domiciled in the U.S. at
the time of her death.
[b] Explain the concept
of double taxation.
(2.5%)
2 Patrick is a successful         2016
3 businessman in the
United States and he is
a sole proprietor of a
supermarket which has
a gross sales of $10
million and an
annual income of $3
million. He went to the
Philippines on a visit
and, in a party, he saw
Atty. Agaton who boasts
of being a tax expert.
Patrick asks Atty.
Agaton: if he (Patrick)
decides to reacquire his
Philippine citizenship
under RA 9225,
establish residence in
this country, and open a
supermarket in Makati
City, will the BIR tax
him on the income he
earns from his U.S.
business? If you were
Atty. Agaton, what
advice will you give
Patrick? (5%)