MOCK BAR IN TAXATION

MARCH 7, 2021
 I.

a. The doctrine of equitable recoupment means that

when a taxpayer who is entitled to tax refund fails
to exercise such right or claim within the period
allowed by law, he may instead apply for tax credit
for the same tax. This is not recognized in our
jurisdiction.

Thus, it is prohibited under the law.

b. As basis for taxation, the necessity theory provides

that taxes are necessary for the continued existence
of the government, without which the latter cannot
perform its functions nor operate to provide
services to the inhabitants.

c. As basis for taxation, the benefits received theory

refers to the tangible and intangible benefits
provided by the government to the taxpayers as
justification for the collection of taxes.

II.
a. The 2 kinds of double taxation are: Double taxation in
the broad sense where a taxpayer is liable for taxes
imposed by different taxing authorities or States; and
the double taxation in the strict sense where the same
subject is taxed for the same purpose, within the
same period, in the same territory, by the same
taxing authority, of the same kind and character of
taxes.
 b. Yes. The advice of the BIR is correct as long as the
corporation is a domestic corporation.

Under the tax code, a domestic corporation is taxable

for its income from sources within and without the
Philippines.

Here, ABC is a domestic corporation. Thus, it is

taxable for its worldwide income.

III.
a. As to its purpose, compromise is mutual concession by
the parties to avoid litigation or put an end to an
existing one while tax abatement is the cancellation of
the tax due by the BIR.

As to the ground, there can be a compromise if there

is a reasonable doubt as to the validity of the tax
assessed or the taxpayer demonstrates a clear
financial inability to pay, while abatement may be
pursued when the costs of collection will be more
costly to the government than the amount of tax due.

b. Tax avoidance is a scheme or method to minimize or

escape taxation within the means authorized or
permitted by law, while tax evasion involves a
fraudulent act with criminal intent to deceive the
government in avoiding tax liabilities.

c. As to purpose, tax is for revenue generation, while

license fee is for regulation. A tax is imposed under
the inherent power of taxation while a license fee is
imposed under the police power of the State.
IV.
a. No. the CAO is not correct in assessing the real
property taxes.

The Constitution provides that all lands and

improvements actually, directly, and exclusively (ADE)
used for religious purposes are exempt from real
property taxes.

Here, while the land and building are owned by Bingo,

the same is actually, directly, and exclusively used for
religious purposes. Jurisprudence further clarified that
ownership is immaterial as long as the real property is
ADE used for religious, charitable and educational
purposes.

Thus, the property is exempt from real property tax.

b. Yes. Bingo is liable to pay VAT.

Under the Tax Code, any person, engaged in trade or

business whose gross sales/receipts for the taxable
year exceeded Php 3 Million shall be liable to pay VAT.

In this case, Bingo’s income from rentals for the whole

year exceeded the VAT threshold of PhP 3 Million.

Thus, he is liable to pay VAT.

V.
a. The properties are subject to estate tax but not to
gross estate tax as the estate of the deceased is not
taxed based on gross but on its net.

Under the law, properties of a Non-Resident Decedent

located in the Philippines shall form part of his gross
estate for purposes of estate tax, subject to
reciprocity rule.

Here, Dalton has several properties located in the

Philippines.

Thus, these properties shall be subject to estate tax.

b. Yes. He is allowed.

Under the Tax Code, a decedent is entitled to a

standard deduction for estate tax purposes. However,
for Non-Resident Decedent, the amount of such
deduction shall only amount to Php 500,000.00

While the amount is different for non-residents, the

law still grants Dalton a standard deduction. Thus, he
is entitled to claim standard deduction.

c. No. He is not allowed.

For a family home to be allowed as a deduction, the

law requires that the same be the place of residence
of the decedent and that it is located within.

Since, Dalton is a non-resident, he cannot have a

family home in the Philippines.
 Hence, it is not allowed as a deduction.

d. Yes. The TRAIN law now authorizes banks to allow

withdrawals provided that whenever the bank has
knowledge of the death of the depositor, the bank
shall withhold and deduct 6% FWT on such
withdrawal.

VI.
a. The grounds for the suspension of the running of the
statute of limitations in the collection and enforcement
of internal revenue taxes are:

 During such time that the Commissioner of

Internal Revenue is prohibited from collection and
enforcement;
 When the taxpayer requested for reinvestigation
and the same is granted;
 When a warrant of distraint or levy has been
issued, but there is no property;
 When the taxpayer is outside of the country.

b. The following are the characteristics of sound tax

system: Fiscal Adequacy, which means that the
collection of taxes must be sufficient for the
operations and services of the government;
Administrative Feasibility which refers to the efficient
enforcement and implementation; and Theoretical
justice which is based on the taxpayer’s ability to pay.

VII.
 a. No. CDE Corp. cannot claim the premiums paid as
deductions from income tax.
Under the Tax Code, premiums paid by the employer
on an insurance on the life of its employee is not
considered as a business expense which is allowed as
a deduction from the gross income. Moreover, such
premiums paid on life insurance is not among the
allowable deductions enumerated under Sec. 34 of the
Tax Code.

Thus, it is not allowed as a deduction.

b. It depends whether the designation as beneficiary is

revocable or irrevocable.

Under Sec. 32 of the Tax Code, proceeds of life

insurance are excluded from the gross income
provided that the designation of the beneficiary is
irrevocable. If not, then the same is included in the
gross income and therefore, taxable.

VIII.
a. The concept of Bona fide Arm’s Length Rule in relation
to the amendments made under the TRAIN Law on
Donor’s Tax simply means that a sale or transfer of a
property by one will not be considered as a transfer
for insufficient consideration provided that the sale or
transfer is a bona fide transaction with no donative
intent on the part of the transferor.

With this, if the transfer is not a bona fide transfer in

arm’s length, and with a donative intent, then the
difference between the selling price and the value of
 the property shall be deemed a donation, subject to
Donor’s tax.
b. Transactions deemed sale are those enumerated
under Sec. 106 (B) of the Tax Code which includes,
among others:

-Consignment of goods, if not paid within 60 days

from the date of receipt by the consignee;
-Use or consumption, not in the course of trade or
business, of goods and supplies intended for sale in
the ordinary course of trade or business.

IX.
a. If I were the judge, I will dismiss the case for lack of
jurisdiction over the subject matter.

Under the Tax Code, a taxpayer who is required by

the BIR to pay taxes based on an administrative
issuance like the RMO in question, may file an action
with the CTA to assail the validity of the said issuance.

Here, the action was filed with the Regional Trial Court
instead of the CTA who has the exclusive jurisdiction
over cases relating to the BIR’s implementation of the
Tax Code.

Thus, the action in the RTC should be dismissed.

b. The protest by XYZ Air is not meritorious.

 In a similar case, the Court held that the source of the
income is the place where the airline tickets were
sold.
What is determinative is the place of sale of tickets
and not the place of performance.
In the case at bar, the sale of tickets by the agent
transpired within the Philippines and not outside.
Moreover, the act by the agent is considered as the
act of the principal.

Thus, the income from the sales constituted income

derived from sources within the Philippines.

X.
a. The sale is subject to Capital Gains Tax.

The law provides that capital gains tax shall be

imposed on the sale of capital assets or those
properties which are not intended for sale nor used in
the ordinary course of trade or business.

Here, GHI Inc., failed to commence operations and is

considered to have retired from business. Since it is
no longer engaged in business, the machineries and
equipment are now considered as capital assets.

Thus, the sale is subject to capital gains tax.

b. Under the Tax Code, ordinary assets are those

properties which are used in the ordinary course of
trade or business or intended for sale. On the other
hand, capital assets are properties which are held not
 for trade or business and not intended for sale in the
ordinary course of trade or business.

XI.
a. No. The BIR is wrong because the Train Law is not
applicable.

Jurisprudence states that for estate tax purposes, it is

well-settled that the law at the time of death of the
decedent shall govern. And prior to 2018, medical
expenses are allowed as deduction to the gross
estate.

In the case at bar, the governing law at the time of

death is the Tax Code of 1997 and not the Train law.

Thus, the siblings can claim said medical expenses as

deduction.

b. Delinquency interest is the interest for failure to pay

the assessment from the date of the demand from the
BIR while deficiency interest is the interest from
failure to pay the difference between the return filed
by the taxpayer and the amount of tax due as
determined by the BIR.

Deficiency interest commences from the date

prescribed by law for the filing of return while
delinquency interest commences to run from the date
of demand by the BIR.
XII.
a. Among others, the following are instances where the
BIR can issue FAN without a prior Preliminary
Assessment Notice:

-When there is a discrepancy caused by a

mathematical error which is apparent on the face
of the return;
-Failure to pay excise tax on goods subject to
excise tax;
-Discrepancy between the tax withheld and the
amount remitted to the BIR;
-When the taxpayer is about to retire from
business;
-When there is fraud

b. The taxpayer’s contention is partly correct and partly

wrong.

Under the law, whenever a self-employed

professional’s gross receipts exceed 3 Million pesos in
a year, the latter shall be subject to VAT.

Here, the professional fees cannot be subject to VAT

because it did not reach the VAT threshold of Php 3
Million pesos.
 Thus, the assessment is only valid with respect to the
income tax but not to VAT.

XIII.
a. Under the Tax Code, the BIR has a period of 3 years,
counted from the date prescribed by law for the filing
of the return or payment, within which to assess the
tax due of the taxpayer.

In the given facts, the prescriptive period to assess

tax liabilities for the year 2012 should be counted
from the date of filing of the return for said taxable
year. As of January 2017, when the Company
executed the waiver, the period to assess has already
prescribed. Moreover, the waiver failed to provide the
period agreed upon.

Since the waiver is invalid and ineffective, the BIR can

no longer make an assessment.

b. Under the Tax Code, the period to collect taxes is five

(5) years from the date of assessment.

In the case at bar, the period to assess has prescribed

and therefore, the assessment made is void.

Since the assessment made beyond the prescriptive

period is void, the BIR can no longer collect.

XIV.
a. The requirements of a valid waiver of statute of
limitations are:
-The waiver must be made within the period
to assess;
- It must be dated;
- Executed by the taxpayer himself;
- Accepted by the authorized officer of the
BIR;
- The period agreed upon must be expressly
provided.

b. Yes. The right to assess and collect deficiency taxes

for 2012 has prescribed.

Under the Tax Code, the BIR has a period of 3 years,

counted from the date prescribed by law for the filing
of the return or payment, within which to assess the
tax due of the taxpayer for the taxable year. Also, the
period to collect taxes is five (5) years from the date
of assessment.

The prescriptive period to assess tax liabilities for the

year 2012 should be counted from the date of filing of
the return for said taxable year. As of January 2017,
when the Company executed the waiver, the period to
assess has already prescribed. Moreover, the waiver
failed to provide the period agreed upon.

Since the assessment made beyond the prescriptive

period is void, the BIR can no longer collect.
 c. No. The contention of the BIR is not correct.

Under the law, the issuance of a Final Assessment

Notice is mandatory before the issuance of an FDDA
as a requirement of due process.

In this case, the BIR erroneously issued an FDDA

without a prior issuance of a FAN after the Company
failed to reply to the PAN.

Thus, the contention of the BIR is not correct as it is a

violation of due process.

XV.
a. Yes. Makati City can collect RPT on the land and
building leased for commercial activities, but not on
the land and building used for educational purposes.

Under the Constitution, lands and improvements

actually, directly, and exclusively used for educational
purposes are exempt from RPT.

In this case, not all but only some portions of the land
and buildings of the University are actually, directly
and exclusively used for educational purposes.

Thus, those part of land and buildings which are

leased for commercial activities, and not used for
educational purposes, shall be subject to RPT.

b. No. The BIR cannot assess Pokekay University for

income tax on the rental income provided that the
 revenue from such rental is actually, directly, and
exclusively used for educational purposes.

The 1987 Constitution provides that all revenues and

assets of a non-stock and non-profit educational
institution which are actually, directly, and exclusively
used for educational purposes shall not be subject to
tax.

Thus, as long as Pokekay University uses or devotes

its rental income actually, directly, and exclusively to
educational purposes, such income shall be exempt
from income tax.

XVI.
a. No. Only the deduction claimed for family home is
correct.

It is settled that the law at the time of death shall

govern. With the advent of TRAIN law in 2018,
medical and funeral expenses are removed and no
longer allowed as deduction from gross estate for
estate tax purposes.

Here, the heirs claimed funeral expenses as a

deduction.

Thus, only the deduction for family home is correct

and not the deduction for funeral expenses.

b. Yes. A standard deduction may be claimed.

 The Tax Code provisions on estate tax allows a
standard deduction in the amount of Php 5 Million for
resident citizen decedents. Further, there is no need
to present a proof for a claim for standard deduction.

In this case, the decedent is a resident citizen. Thus,

the amount of 5 Million can be deducted from the
gross estate.

c. Yes. The property located in California should be

included.

Under the law, the gross estate of a resident citizen

decedent shall comprise of all his real properties,
tangible and intangible personal properties located
from within and without the Philippines.

Here, the decedent is a resident citizen.

Hence, the property located abroad is part of his gross

estate for estate tax purposes.

XVII.
a. Under the Local Government Code, these properties
are exempt from real property taxes:

 Property owned by the government, its agencies

and instrumentalities, except when beneficial use
pertains to taxable persons;
 Properties actually, directly, and exclusively used
for educational, religious, and charitable
purposes.
 b.
a. Recapture rule means the taxpayer who is acquitted
in a criminal tax case is not absolved to pay his tax
liabilities. Thus, he must be directed to pay all his tax
dues including interests, penalties, and surcharges.

b. Tax Dodging simply refers to the willful and

deliberate acts, used by a taxpayer in order to
minimize, if not to escape the payment of taxes.

XVIII.
a. Transactions done “in the course of trade or business”
for purposes of applying VAT includes, among others,
the sale of goods, sale of services, lease of property,
and importation of goods.

b. No. He is not correct.

Under the Tax Code and relevant statutes, fees

collected by Homeowner’s Association from its
members as association dues are exempt from VAT. It
is expressly stated in the law that said dues are not
subject to VAT.

Moreover, the Association is not engaged in trade or

business.

Thus, the statement of Mr. is wrong.

XIX.
a. Both PAN and FAN contain the amount due,
computations, factual and legal basis in support of the
assessment.

As to the issuance, a PAN is issued after the issuance

of a Letter of Authority, while a FAN is issued after the
tthe PAN or not.

As to the remedies of the taxpayer, the taxpayer may

file a reply to the PAN, while in FAN, the taxpayer may
file a protest which is either a request for
reinvestigation or request for reconsideration.
b. Yes. The deficiency tax assessment and warrant of
distraint or levy is valid.

The law enumerates the instances where the BIR is

allowed to issue FAN without issuing a PAN and among
those instances is when there is a discrepancy
between the amount of tax withheld and the amount
remitted to the BIR.

Here, the FAN was issued for KLM’s deficiency for

withholding taxes. As a result, a prior issuance of a
PAN can be dispensed with. Also, the law provides
that the BIR has a period of 5 years from assessment
to enforce collection. Such collection can be made by
distraint or levy of properties.

Thus, the deficiency tax assessment and the

subsequent warrant of distraint or levy is valid.

XX.
a. The following are the instances where gifts made are
exempt from donor’s tax:

-The initial Php 250,000.00

-In favor of the government
-In favor of exempt institutions such as religious,
scientific, civic, charitable, educational, and
others. Provided that not more than 30% of the
donation is used for administration purposes.

b. No, because it is not considered as a donation but a

bona fide sale with no donative intent. The sale of the
shares of stock is prompted by the liquidity problems
and other factors beyond the control of the transferor.

While the transfer or sale is for a consideration less

than the value of the shares, the law does not
consider the same to be a gift or donation because the
sale was bona fide at arm’s length and without any
donative intent on the part of the transferor.

Thus, the sale does not fall in those instances where

the gift is exempt from income tax as it is not
considered a gift within the purview of the law.