SAN BEDA UNIVERSITY

COLLEGE OF LAW
Alabang

ADVANCED TAXATION FIRST SEMESTER

MIDTERMS EXAMINATION A.Y. 2021-
2022

PART I – 30pts

1. On various dates, certain municipalities of Batangas province issued resolutions through

their respective Sanggunians granting franchise in favor of MERALCO for the supply of
electric light, heat and power within their concerned areas. After the Local Government
Code of 1991 took effect in January 1, 1992, the province enacted an ordinance imposing
a franchise tax on businesses enjoying a franchise. On the basis thereof, the Provincial
Treasurer send a demand letter to MERALCO for the corresponding tax payment.
MERALCO assails the constitutionality of the said ordinance. Is the imposition of the
franchise tax under the assailed ordinance violative of the non-impairment clause of the
Constitution? Explain fully (6pts).

NO. It is not violative of the non-impairment clause of the Constitution. Under the law,
there can be a valid exemption to the non-impairment clause if such exemption is granted
under a franchise. Since MERALCO was granted a franchise favoring them, they are
therefore unable to use the non-impairment clause to avoid the payment of franchise tax.

2. The City of Calaca in Batangas entered into a loan agreement with the Development
Bank of the Philippines (DBP) to finance the redevelopment of the public plaza.
However, a group of residents led by Apolinario Bathan, invoking their rights as a
taxpayer, filed a complaint against DBP and various officers of the City, assailing the
validity of the subject loans and praying that the commercialization of the public plaza
be enjoined. Does Bathan have the right to institute a taxpayer’s suit? Explain fully
(6pts).

NO. Bathan does not have a right to institute a taxpayer’s suit. A taxpayer’s suit is only
for matters regarding the payment of taxes. It does not include what the taxes are going
to be used for. In this case, the financing of redevelopment does not fall under the
matters covered by a tax suit, and therefore, Bathan does not have the right to institute a
taxpayer’s suit.

3. The Commissioner of Internal Revenue (CIR) assessed Rizal College, a non-stock, non-
profit educational institution for deficiency income tax on its rental earnings from
restaurants, canteens and bookstores operating within the premises of the college; and
also deficient documentary stamp tax on loan agreements and lease contracts. Rizal
College protested and anchored its petition on Article XIV of the Constitution which
exempts all revenues and assets of non-stock, non-profit educational institutions used
actually, directly and exclusively for educational purposes from taxes and duties. Cir
however, argued that the Section 30(H) of the Tax Code qualified the tax exemption
granted to non-stock, non-profit educational institution such that the revenues and
 income they derived from assets or from any of their activities conducted for profit are
taxable even if these revenues and income are used for educational purposes. Decide
with reasons (6pts).

It will depend on the circumstances. What matters in this tax exemption is not the where
the income comes from, but to what purpose it will be used. If the proceeds of the rental
earnings are for the maintenance and improvement of the educational facilities, then it
cannot be taxed. However, if the proceeds from the rentals are profit for the owners of
Rizal College, then it can be taxed.

4. MBC received two(2) assessment notices from the BIR stating that it is liable for
deficiency final withholding tax and Withholding VAT which were duly protested but
were denied by the BIR. Hence, MBC filed with the BIR a request for reconsideration of
the said decision. On January 9, 2019, it received a Preliminary Collection Letter from
the BIR stating that the constructive receipt by MBC of the BIR’s denial of its protest
rendered the decision final and that the request for reconsideration does not affect the
finality of the decision. On February 3, 2019, MBC appealed to the Court of Tax Appeals
(CTA) claiming that it did not receive BIR’s denial of its request for reconsideration. BIR
argued that CTA has no jurisdiction since the appeal was not timely filed with the CTA.
MBC argued that it did not receive BIR’s denial of its protest and thus it can still dispute
the assessment before the CTA. Did MBC timely filed its protest on the assessment with
the CTA? Explain fully (6pts).

YES, MBC filed its protest within the proper period. The proper period within to file a
protest on the assessment of the CTA still stands since it has been only been less than a
month since the filing with the CTA and since the BIR failed to do its duty in sending a
denial of the protest. Therefore the MBC was still well within the proper period of filing
a protest.

5. Mr. Ely Evangelista was assessed for deficiency income tax for the year 2020. BIR
initiated the filing of a civil action to collect the tax amounting to P100,000. After the
judgment of the liability became final, Mr. Evangelista offered the BIR a compromise
settlement of 50% of the judgment award, as this amount was all he could afford. Can
Mr. Evangelista and the BIR enter into a compromise settlement as to the tax liability?
Explain fully (6pts).

NO, Mr. Evangelista and the BIR cannot enter into a compromise settlement as to the tax
liability. Tax liability is not something that can be the subject of a compromise
settlement. Mr. Evangelista can not just settle the liability, since it is not the proper
remedy for him. He should have instead opted for tax amnesty if he could not pay.

PART II – 37pts

6. ABC Company entered into a Build-Lease-Transfer (BLT) agreement with the National
Government whereby the former shall construct an MRT line from Point A to Point Z.
 Under the BLT agreement, the DOTC shall operate the said MRT line subject to payment
of lease rentals to ABC Company. Under the BLT agreement, any real property tax on
the MRT station shall be assumed by the national government. The LGUs wherein the
subject MRT stations wanted to impose RPT on the same. ABC Company argues that it
is not liable for RPT based on the express provisions in the BLT agreement and that the
LGUs should go after DOTC instead. Is ABC Company correct? Explain fully (5pts).

ABC company is correct. There is no prohibition for the national government to tax
itself. Since the BLT agreement clearly states that the national government shall be the
one to cover the real property tax, then the government should be the one to be held
liable for the real property taxes. It cannot waive the provision since it was the
government itself that agreed to such provision, and to allow such would be a violation
of the agreement between the two parties. Therefore, ABC company is correct.

7. True or False (explain your answer). Tax statutes enacted by Congress are construed
strictly against the taxpayer and liberally in favor of the national government (3pts).

False. Tax statutes enacted by Congress must be construed strictly against Congress. It is
to ensure that congress does not go above its powers. What is construed strictly against
the taxpayer are tax exemptions, to ensure that the government is not withheld what
rightfully belongs to it.

8. Give 2 distinctions between the power to tax of the national government from the power
to tax of local government units (3pts).

The National Government can delegate taxing authority to other bodies, while local
governments cannot. Local governments are also unable to tax anything that falls under
Internal Revenue Tax.

9. Tito, Vic and Joey jointly co-owned a vacant parcel of land. Iskul Bukol University, a
non-stock and non-profit university, entered into a lease contract with Tito, Vic and Joey
last January 2, 2021 whereby the former shall construct a ten (10) storey university
building over the subject land beginning February 2021. Is the land owned by Tito, Vic
and Joey subject to the 2021 real property tax under the Local Government Code.
Explain fully (5pts).

Yes, the land is subject to the 2021 real property tax. What matters in deciding the
payment of real property tax is the date of acquisition. Since Tito, Vic, and Joey have
already acquired the property in January, then they must pay the 2021 real property tax
already.

10. Ang Dating Doon, a religious organization, sought your legal advice. Ang Dating Doon
owns a two (2) hectare uncultivated parcel of land located in the Municipality of Pateros.
The intention of the board of trustees of Ang Dating Doon is to sell the said land five (5)
years from now in order to raise proceeds to finance the construction of a church. Can
 the Municipality of Pateros impose the 5% idle land tax this year against Ang Dating
Doon? Explain fully (5pts).

Yes, the Municipality of Pateros may impose the 5% idle tax against Ang Dating Doon.
None of the valid exemptions to idle tax is present in this situation. Mere intention to sell
the land 5 years from now is not a valid ground to exempt them from idle tax. It can only
be through force majeure, civil unrest, physical incapability to do so, or serious disaster
that idle tax can be held exempt. The intention to sell without any improvements on the
property will still be subject to idle land tax.

11. PDEA Inc., a domestic company engaged in the business of manufacturing prescription
drugs, maintains its principal office in Quezon City. Its factory is located in Manila, near
the Department of Justice building. All sales transactions involving the manufactured
prescription drugs are conducted in its office at the Embassy, Fort Bonifacio, Taguig
City. For calendar year 2020, PDEA Inc. generated gross sales of P50Million. For
purposes of local business taxes, PDEA Inc. must pay in which local government unit(s).
Explain fully (5pts).

It must pay local business tax in Taguig City. According to the Local Government Code,
the sales office in which the transaction is done is where the local business tax must be
paid. Since the sales are conducted in Taguig city, despite the main office and factory
being located in different places, the correct location to pay the local business tax is
Taguig City.

12. True or False (explain your answer). Lands, buildings, improvements and
machineries of charitable institutions are exempt from real property tax (3pts).

FALSE. These properties being owned by charitable institutions is not enough. If

the properties are used for profit, and not used for the purposes enumerated in the
law, then the properties may still be taxed by the government.

13. Mr. X, a gasoline dealer, leases a parcel of land from Mr. Y as site for his gasoline
station. Mr. X installed an underground gasoline tank and a soft drink vending
machine on the said site. Is the vending machine real property for purposes of
real property taxation under the LGC? Explain your answer (3pts).

No, the vending machine is not real property. This is because the vending
machine is not a fixed object on the land, nor is it a movable object that is
important to the business of the owner. It is merely there to give people the
option to buy refreshments instead of bringing one themselves. As such, the
vending machine cannot be considered real property for purposes of real
property taxation.
 14. Prior to her death, Mrs. Juana had a pending claim for an income tax refund with
the Bureau of Internal Revenue (BIR) in the total amount of P1Million. Michael
assisted Lincoln, the estate administrator, in computing the applicable estate tax
for the estate of the late Juna. Lincoln was later informed by Michael that the
estate tax would be P1.5Million. Can the estate offset the P1Million income tax
refund claim against the P1.5Million estate tax liability? Explain your answer
(5pts).

NO, the estate cannot offset the refund claim against the tax liability. The claim
and the liability are not reciprocal obligations. The law does not allow that a tax
payer to not pay the liability just because there is refund. Such is not the subject
of a compromise, and the two must pay each other properly. There can be no
automatic offset between the obligations of both parties.

PART III – 33pts

Multiple Choice (no need to explain your answer)

15. As to scope of the legislative power to tax, which is not correct (1.5pts)?

a) Where there are no constitutional restrictions, and provided the subjects are within the
territorial jurisdiction of the state, Congress has unlimited discretion as to the persons,
property, or occupation to be taxed
b) In the absence of any constitutional prohibition, Congress has the right to levy a tax of
any amount it sees fit
c) The discretion of Congress in imposing taxes extends to the mode, method or kind of
tax, if not restricted by the constitution
d) The sole arbiter of the purpose for which taxes shall be levied is the Commissioner of
Internal Revenue (CIR) provided the purpose is public. However, the courts may review
the levy of the tax to determine whether or not the purpose is public

16. Which of the following statements is not correct (1.5pts)?

a) Tax burden shall neither be imposed nor presumed to be imposed beyond what the
statute expressly and clearly states because tax statutes should be construed strictly
against the government
b) Tax exemptions, tax amnesty, tax condonations and their equivalent provisions are not
presumed and, when granted, are strictly construed against the taxpayer because such
provisions are highly disfavored by the government
c) Exemptions from taxation are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right
d) Congress has the duty and the exclusive power of enacting, implementing and
interpreting tax laws.

17. The President of the Philippines and the President of China entered into a bilateral
agreement in 2022. In such agreement, China pharmaceutical firms which established
 branches in the Philippines shall be exempt from all national and local taxes. In
exchange, such firms shall provide Covid-19 drugs and vaccines to the Philippine
population at the 50% discount rate. The agreement is (1.5pts):

a) Valid, because it is pursuant to the President's executive power

b) Void, because the power to grant tax exemption is vested in Congress
c) Void, because it is unfair to other foreign pharmaceutical firms
d) Valid, because the purpose is to promote public welfare

18. Revenue regulations are (1.5pts):

a) Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that
specify, prescribe or define rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code (NIRC) and related statutes
b) Issuances that publish pertinent and applicable portions, as well as amplifications,
laws,rules, regulations and precedents issued by the BIR and other agencies/offices
c) Issuances that provide directives or instructions; prescribed guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals,objectives, plans and programs of the Bureau in
all areas of operations, except auditing
d) None of the above

19. Revenue Memorandum Circulars (RMCs) are (1.5pts):

a) Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that
specify, prescribe or define rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code (NIRC) and related statutes
b) Issuances that publish pertinent and applicable portions, as well as amplifications, laws,
rules, regulations and precedents issued by the BIR and other agencies/offices
c) Issuances that provide directives or instructions; prescribed guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in
all areas of operations, except auditing
d) None of the above

20. Revenue Memorandum Orders (RMOs) are (1.5pts):

a) Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that
specify, prescribe or define rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code (NIRC) and related statutes
b) Issuances that publish pertinent and applicable portions, as well as amplifications, laws,
rules, regulations and precedents issued by the BIR and other agencies/offices
c) Issuances that provide directives or instructions; prescribed guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in
all areas of operations, except auditing
d) None of the above
21. The following are the powers of CIR except (1.5pts):

a) After a return has been filed or when no return is filed, the CIR may authorize the
examination of any taxpayer, and assessments of correct amount of tax
b) The CIR has the power to issue Summons or Subpoena Duces Tecum to a taxpayer, an
officer or employee of a taxpayer, or person having possession of records relating to the
business of a taxpayer
c) The CIR has the power to take the testimony of a person, under oath, that may be
relevant or material to the inquiry
d) The CIR has the power to inquire into a taxpayer's bank deposits in all instances

22. What is tax mapping (1.5pts)?

a) It is equivalent to tax assessment within the applicable reglementary periods depending

on whether the taxpayer is guilty of fraud or not
b) It is a mere verification made by the BIR of a taxpayer's compliance with registration and
other requirements prior to, during, and after its business operations such as the
following: (a) registration of the head office and branches; (b) the payment of annual
registration fee and posting of the same in the place of business; (c) authority to print
receipts and invoices; (d) the issuance of receipts and invoices on every sale; (e) the
contents of such receipts and invoices; (f) registration of cash register machines, point of
sale machines, and computerized accounting systems; and (g) registration of books of
accounts
c) This is the directory of the revenue district offices of the BIR with the listing of all
officers and revenue agents
d) None of the above

23. Adolfo Pritzker, aGerman citizen permanently residing in the Philippines, received
several items during the taxable year. Which among the following is subject to
Philippine income taxation (1.5pts)?

a) Consultancy fees received for designing a computer program and installing the same in
the Makati facility of a Chinese firm
b) Interest from his Euro deposits in a foreign bank in London
c) Dividends received from a German corporation which derived 40% of its annual gross
receipts from the Philippine sources for the past 3 years
d) Gains derived from the sale of his condominium unit located in FortWorth, Texas in the
United States of America

24. All of the following statements are correct, except one. Which is the exception? (2pts)

a) The source of interest income is the country where the debtor resides
b) The source of dividend income is the country where the corporation was incorporated
c) Rents are considered derived from the country where the property is located
d) Income from personal services is considered derived from the country where the
services were rendered
 25. ABC Inc., a corporation registered and holding office in Australia, not operating in the
Philippines, maybe subject to Philippine income taxation on (1.5pts)

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) Interest derived from its dollar deposits in the Philippine bank under the expanded
foreign currency deposit system

26. Which of the following statements is true? (1.5pts)

a) The power of taxation is legislative and executive in character

b) The power of taxation can be exercised only if the revenues are used for public
infrastructures
c) The power of taxation is the supreme and absolute power of a state
d) Revenue raised through the exercise of the power of taxation can be used only for public
purposes.

27. A - The CIR may refund a tax even without a claim for refund from the taxpayer where,
on the face of the return upon which the payment was made, such payment clearly
appears to have been erroneously made.

B - When two years are about to expire from the date of payment and no decision has yet been
received by the taxpayer on his claim for refund filed with the BIR, the taxpayer may appeal to
the CTA even without waiting for the decision of the BIR on his claim for refund. (1.5pts)

a) True, true
b) True, false
c) False, true
d) False, false

28. Merry Christmas Corporation filed its annual ITR for 2019 and chose therein the option
to be issued a tax credit certificate (TCC) for its excess creditable taxes amounting to
PHP5,000,000

In its Annual ITR for 2020, it declared the same PHP5,000,000 (previously applied for a TCC in
the 2019 ITR) as "Prior Year's Excess Credit”. Subsequently it filed an amended Annual ITR for
2020 wherein it reduced the "Prior Year's Excess Credit" to PHP2,000,000, and then filed a claim
for refund/issuance of a TCC for the balance of PHP3,000,000

Is the taxpayer entitled to the refund of its 2019 excess CWTs in the amount of PHP3,000,000?
(1.5pts)
 a) Yes. The taxpayer is allowed to change its choice from carrying over its excess creditable
tax to electing a refund or TCC
b) No. Once a taxpayer opts to carry-over its excess creditable tax, it may not subsequently
elect a refund or issuance of TCC
c) Yes. The taxpayer may insist that the insertion of the carryover in the 2020 ITR was a
mistake which can be revoked by amending the ITR
d) No. The taxpayer can only make a choice either to claim excess creditable taxes as refund
or tax credit if the transaction arose from export sales

Problems:

29. Joy Todaworld, Filipino, resident of Makati, working as an accountant in DODC &
Associates in Makati, was granted a scholarship to study in Stanford University in the
United States. She left the Philippines on September 1, 2018, lived in Palo Alto,
California, USA until she graduated on May 15, 2020. She originally wanted to return to
the Philippines after graduation for the renewal of lease contracts with her lessees but
was immediately hired by DAH& Company in New York. She began working in New
York on May 16, 2020.

For the taxable year 2020,

a) Does Joy need to file an income tax return with the BIR for the incomes she
realized in 2020? Explain fully. (4pts)

Yes, Joy needs to file an income tax return with the BIR for the incomes realized in 2020. This is
because of the Nationality Principle of Taxation. The Nationality Principle states that even if a
Filipino goes abroad, they must still pay taxes to the Philippines for any income they might have
derived, especially if the lessees are for properties found in the Philippines.

b) Should she convert the USA income to Philippine Peso and to consolidate with
her Philippine income? Explain fully. (4pts)

No, she does not need to convert the USA income to Philippine Peso. Since we have a tax
treaty with the United States of America, there is no need to consolidate the US income
with her Philippine Income. Our tax treaties are there to help prevent double taxation
among our citizens

30. Happy Newyear, a 25-year-old Filipina model and actress residing in Paco, Manila
vacationed in Vienna, Austria in June 2020. While in Vienna, she was awarded the cash
prize worth $1,000,000 for being voted by the Ministry of Tourism as the prettiest tourist
in Vienna in 2020.She opened a bank account with Citibank (Vienna). Which incomes
shall be included in her income tax return? Explain fully. (4pts)
The only income she has to include in her ITR is the income she receives from being a model
and actress, as well as the money she earned from the prettiest tourist award. This is because
winnings from a contest is still taxable in the Philippines, even if it has been taxed in Vienna.
The opening of a bank account in Vienna does not mean that the money is no longer taxable in
the Philippines. This can still be considered as income tax, and can therefore be taxed by the
Philippines since she is still a Filipino citizen.