Tax Assignment

1.
A.
There is reasonable doubt on the validity of the assessment when assessment was
made based on the Best Evidence Obtainable Rule and there is reason to believe
that the same can be disputed by sufficient and competent evidence.

B.
When a report required by law as basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or rules and
regulations or when there is reason to believe that such report is false, incompetent
or erroneous, the Commissioner shall assess the proper tax on the best evidence
obtainable.

2.
The BIR is not correct in its assessment.

Under the law, if an individual performs services for the creditor, who in
consideration thereof cancels the debts, it is income to extent of the amount
realized by the debtor as compensation for his service.

In the case at bar, Mr. B offered to condone her cash advance, Mr. A offered to
clean his house which is being used at the same time as a warehouse of the store's
merchandise in exchange for the condonation of her cash advance to which he
agreed.

3.
 A.
Incorrect for violation of the doctrine of exhaustion of administrative remedy.

Under the law, before a taxpayer can avail of judicial remedy in cases where it
would require the resolution of an administrative body, the parties shall first avail
such remedies.

In the case at bar, MDC filed the petition for review to the Court of Tax Appeals
without waiting for the resolution of the CIR in the administrative case. It therefore
violates the doctrine of exhaustion of administrative remedy.

B.
The CTA do not acquire jurisdiction over the case should there be violation of the
Doctrine of Exhaustion of Administrative Remedy.

C.
The 90+30 day periods in claiming for refund of input taxes explains that in proper
cases, the Commissioner shall grant a refund for creditable input taxes within
90days from the date of submission of the official receipts or invoices and other
documents in support of the application to file. In case of full or partial denial of
the claim, the taxpayer may within 30 days from the receipt of the decision
denying 30 days from the receipt of the decision denying the claim, appeal the
decision with the Court of Tax Appeals.

4.
Optional Standard Deduction is a fixed percentage deduction which is allowed to
certain taxpayers without regard to any expenditure. While, itemized Deduction,
such as expenses, interest, taxes, losses, bad debts, Depreciation, depletion of oil
and gas wells and mines, charitable and other contributions, research and
development, contributions to pension trusts will allow you to claim a higher
proportion of expenses provided it will be substantiated with receipts. In optional
standard for individuals they are allowed by law to report their income and
deductions under a different method of accounting, the gross sales or gross receipts
shall be determined in accordance with the said acceptable method of accounting.
While for corporation, the basis of the OSD is the gross income. Sales returns,
discounts and allowances and cost of goods are deducted from the gross receipts to
arrive at gross income. The method of accounting is not taken into consideration
unlike in the case of an individual.

5.
As a new lawyer I will advise them that if an administrative protest is not acted
upon within one hundred eighty days from submission of documents, the taxpayer
adversely affected by the inaction has two options, he may: (1) file a petition for
review with the CTA within 30 days after the expiration of the 180-day period; or
(2) await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the CTA within 30 days after receipt of a copy of
such decision. The Court further explained that, should the taxpayer opt to await
the final decision of the Commissioner of Internal Revenue on the disputed
assessments beyond the 180-day period, the taxpayer may still appeal to the Court,
but only upon receipt of such final decision.
6.
No, the imposition of tax is not valid. The imposition of tax or any generation of
revenue under the Local government code shall be only exercised by the
Sangguniang of the local government unit concerned through an appropriation
ordinance. The mayor of Davao do not have the right to order the city treasurer to
collect entry tax from the said bank absent tax ordinance enacted by the
Sanggunian. Therefore, void.

7.
A.
If I were the BIR examiner, my basis will be Sec 34 A (1)(c) of the NIRC, as
amended, which provides that no deduction from gross income shall be allowed
under subsection A for any payment made, directly or indirectly, among others, to
a private corporation, if the payment constitutes a bribe or kickback.

B.
If I were the lawyer of ADDITIVE CORP, I will invoke Sec 34 A (1)(b) of the
NIRC, as amended, which provides for the compliance to substantiation
requirements: such as official receipts or adequate records showing the amount of
the expense being deducted, and the direct connection or relation of the expense
being deducted to the development, management, operation and/or conduct of the
trade, business or profession of the taxpayer.

C.
I will rule in against the allowance of the subject expense as an itemized deduction.
Such expense can be considered the same as capital expenditure, since the amount
was staggering, which was incurred to create some form of goodwill for the
taxpayer’s trade or business. Goodwill generally denotes the benefit arising from
connection and reputation are akin to acquisition of capital assets. Hence, expenses
related thereto are not ordinary or necessary business expenses but are capital
expenditures that are not deductible under the NIRC, as amended.

8.
A.
The argument of BIRABIRA is untenable.

The law provides that, in technical importation, if the importer is tax-exempt, the
subsequent purchasers, transferees, or recipients who are non-exempt persons shall
be considered as importers who shall be liable for Value-added Tax due on such
importation.

In the case provided, the argument of BIRABIRA is untenable for the reason that
BIRABIRA, being a non-exempt person, who purchased the machinery from a tax-
exempt persons shall be considered as importers who shall be liable for VAT.

B.
The argument is untenable.

A Preliminary Assessment Notice shall not be required, in which case, issuance of

the formal assessment notice for the payment of the taxpayer’s deficiency tax
liability shall be sufficient when an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to non-exempt
persons.
In the case presented, the argument of BIRABIRA is untenable because the a pre-
assessment notice may not be required and a formal assessment tax may be
sufficient when machineries are locally purchased or imported by an exempt
person and transferred to a non-exempt person. BIRABIRA is a non-exempt
person who is a transferee or purchaser of the machinery from CROCO, a tax-
exempt person.

9.
A.
Tax amnesty partakes of an absolute forgiveness or waiver by the government of
its right to collect what otherwise would be due.

B.
Tax amnesty is immunity from all criminal and civil obligations arising from non-
payment of taxes. It is a general pardon given to all taxpayers, it applies to past tax
periods, hence of retroactive application while, tax exemption is immunity from all
civil liability only. It is an immunity of privilege, a freedom from a charge or
burden of which others are subjected.
C.
Donor’s Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer
of property between two or more persons who are living at the time of the transfer.
It shall apply whether the transfer is in trust or whether the gift is direct or indirect
and whether the property is real or personal, tangible or intangible while an Estate
Tax Estate tax is an excise tax imposed upon the privilege of transmitting property
at the time of death.
A donor’s tax is imposed upon the transfer of a property by way of a gift. A
donor’s tax may also be imposed if the property, other than real property classified
as capital assets, is transferred for less than an adequate and full consideration of
money’s worth. In this case, there shall be a deemed gift that is subject to donor’s
tax. The donor’s tax return, if required, shall be filed within 30 days from the date
the gift is made. Both estate and donor’s taxes due shall be paid at the time the
return is filed.
10.
A.
No, the sale of land in the case is not subject to Donor’s tax.

The general rule is that where a property is transferred for less than adequate and
full consideration in money or money’s worth, the amount by which the Fair
Market Value exceeds the consideration shall be deemed a gift and be included in
computing the amount of gifts made during the calendar year. It is as if the
property was donated but in order to avoid paying donor’s tax, the donor opted to
transfer the property for inadequate consideration. However, there is an exception,
where property transferred is real property located in the Philippines considered as
capital asset, the transfer is not subject to donor’s tax but to a capital gains tax

In the case provided, the sale of the land is not subject to donor’s tax because the
subject land is considered capital asset located in the Philippines which falls under
the exception to the rule on transfers of property that may be considered as
donation.

B.
No, there was no donation in the sale of the car.
The law provides that the donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated. If the value of the personal property
donated exceeds five thousand pesos, the donation and the acceptance shall be
made in writing, otherwise, the donation shall be void.

In the case at bar, the fair market value of the car is P1,000,000.00, thus exceeds
five thousand pesos. Moreover, the donation and the acceptance were not made in
writing. Thus, no donation took place.

C.
No, Aco Raca is not correct in saying that it should be his girlfriend who must pay
the taxes on the said transactions.

Capital Gains Tax is a tax that is always paid by the seller of a capital asset at a
rate of six percent of its gross selling price, zonal value (BIR), or assessed value
(provincial/city assessor), whichever is higher. In order to be liable for payment of
capital gains tax, there must be presumed gain from the sale, exchange or
disposition of the real property. Simply put, tax is only payable when there is a
gain (profit) from the sale of a capital asset and a transfer of ownership resulted
from the sale. Issuance of a tax declaration for a capital asset without an actual sale
does not subject it to tax.
In the case at bar, because there was a valid transaction of sale that took place
between Aco Raca and his girlfriend, Aco Raca is the one liable to pay the taxes on
the said transaction.

11.
 A.
No, the suggestion of the accountant would not really free the company of any tax
on its retained earnings.

Under the law, in addition to other taxes, there is imposed for each taxable year a
tax equal to 10% of the improperly accumulated taxable income.

In the case herein, the suggestion of the accountant will not entirely free the
company of any tax because by allowing earnings and profits to accumulate more
than its paid-up capital, it is now subject to tax equal to 10% of the improperly
accumulated tax.

B.
My advice to avoid any tax imposition on the earnings is to appropriate part or a
portion of the retained earnings for some future use through a board resolution
such as, but not limited to, definite corporate expansion projects requiring
considerable capital expenditure.

12.
No, the action of Jose Reco is procedurally incorrect.

On appeal by the taxpayer of the final decision of the Commissioner or his

authorized representative on the disputed assessment to the Court of Tax Appeals,
if the commissioner or his duly authorized representative fails to act on the
taxpayer’s protest within 180 days from the date of submission, by the taxpayer, of
the required documents in support of his protest, the taxpayer may appeal to the
Court of Tax Appeals within 30 days from the lapse of the said 180-day period,
otherwise, the assessment shall become final, executory, and demandable.

In the case herein provided, the action of Jose is procedurally incorrect because he
should have filed an appeal to the CTA within 30 days from the lapse of the 180-
day period. The assessment had become final and executory because the Jose Reco
had allowed the 30-day period to elapse.

13.
Both reasons must fail.

Jurisprudence provides that the nature of a gift tax is not a property tax nor an
income but an excised tax imposed on the privilege of the owner to give. Moreover
under Sec.32 (B) of the NIRC, the value of the property acquired by gift, bequest,
devise, or descent shall not be included in the gross income and shall be exempt
from taxation provided however that the income of such property be included in
the gross income.

In the present case, the nonpayment of the donor’s tax by the donor does give rise
to a liability by the donee to pay such tax in the form of an income tax. Moreover,
the NIRC expressly excluded the imposition of income tax to properties acquired
by gift.

14.
A. Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

B.
Yes. Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

In the present case, MUGIWARA deliberate omission of a material facts from his
return or any document required of him by the Bureau of Internal Revenue
warrants the modification or reversal of the ruling of the commissioner moreover
such omission may also constitute bad faith. Hence, validly assess the company for
back taxes relating to the unpaid year.

15.

A. Under the tax law, In case where the return is filed beyond the period
prescribed by law, the three year period shall be counted from the day the
return was filed.
B. Under the tax law the three-year statute of limitations for the BIR to issue
an assessment on any tax return is reckoned from the date of actual filing,
whether it is an original return or an amended one.

16.
I will advise YUTAAN that he is exempt from paying the real property tax on the
property but he is not exempt from paying income tax on the rental income of the
property.

A property that is actually, directly and exclusively used for non-stock, non-profit
association organized for charitable and social welfare purposes shall be exempt
from real property tax. The exemption contemplated in the Constitution covers real
estate tax on real properties actually, directly and exclusively used for religious,
charitable or social welfare purposes. The test of exemption from the tax is not
ownership but of beneficial use of the property. The income derived from the sale
of lot and rentals from its use are considered as income from properties which are
subject to tax.

In the case at bar, by virtue of the beneficial use of the property by HAYAG
KAUGMAON Foundation which is a non-stock, non-profit association organized
for charitable and social welfare purposes, the subject property of YUTAAN shall
be exempt from real property tax. However, the income which YUTAAN has
derived from the rent of the property is not exempt from income taxation since the
income tax attaches irrespective of the disposition of such income.

Therefore, I will advise YUTAAN that he is exempt from paying the real property
tax on the property but he is not exempt from paying income tax on the rental
income of the property.

17.
I will advice Mrs. Buhipa not include the 10- hectare farmland in the computation
of the gross estate of her husband.

Under Sec. 85 of the National Internal Revenue Code, as amended, the value of the
gross estate of the decedent shall be determined by including the value at the time
of his death of all property, real or personal, tangible or intangible, wherever
situated. Also, when marriages took place before August 3, 1988 which the
effectivity of the family code, conjugal partnership of gains applies to the property
regime of the spouses, which dictates that properties acquired before the union are
exclusively that of the spouse who acquired such.
Here, the marriage between the surviving spouse and the decedent took place 40
years ago from January 2020, which is before August 3, 1988, conjugal partnership
of gains applies to their property regime. In which case, the 10 hectare- farmland
inherited by Mrs. Buhipa when she was still single is her exclusive property.

Thus, the 10- hectare farmland shall not be included in the gross estate of Mr.
Deadna.
18.
The following are distinctions of Final withholding tax and Creditable withholding
tax:

a. In FWT, the amount of tax withheld is full and final and he is not required to
file any income tax return for the particular income while in CWT, taxes
withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee in said income but should still be
included in the tax return of the recipient.
b. In FWT, the liability for payment of the tax rests primarily on the
withholding agent as payor while in CWT, the liability to withhold is at
source.

19.
In order to claim deductions for his taxable income, Atty. Daugdaug should instead
choose the Optional Standard Deduction (OSD) of 40% from his gross income in
his Income Tax Return (ITR).

The law allows three types of deductions from a taxpayer’s income, namely:
itemized deductions, optional standard deduction and special deductions. An
optional standard deduction (OSD) is a standard rate of deduction amounting to
40% of the gross income of a taxpayer who are citizens and resident aliens
deriving income from business, trade, profession, capital gains and passive income
not subject to final tax.

In the given case, Atty. Daugdaug has lost all his receipts needed to substantiate
his deductions under the itemized scheme. In order to still claim for deductions
despite the loss of such receipts, he should instead elect OSD in his ITR. Under the
OSD scheme, there is no need to present financial statements to support the
deductions.
Hence, I would suggest that Atty. Daugdaug elect OSD in his ITR.

20.
No, the petition should not be granted.

A pre-assessment notice (PAN) is a letter sent to the taxpayer by the Bureau of

Internal Revenue asking the taxpayer to explain within 15 days from receipt on
why he should not be subject to an assessment notice. It has been held that the
issuance of PAN is part of the due process requirement however one of the
exceptions to where such is not necessary for valid assessment is when there is a
discrepancy in the amount of tax remitted as against the tax withheld by the
withholding agent. After the issuance of PAN, and no reply was given, a Final
Assessment Notice with Formal Letter of Demand (FAN/FLD) must be jointly
issued.

It is clear that what was issued in this case was a pre-assessment notice, termed as
preliminary 15-day letter, owing to the fact that a reply may be filed within the 15-
day period. However, it was a faulty assessment since it only contains details of the
post-audit review without the facts and law on which it is based. Furthermore, only
an FLD was issued by the CIR after no reply on the PAN was given.

Therefore, the petition for review should be granted by the CTA.

21.
No, the RTC did not gravely abuse its discretion in issuing a preliminary
injunction.

The Local Tax Code, unlike the National Internal Revenue Code as amended, does
not prohibit injunction against the collection of local taxes. This remedy may be
resorted to by any local taxpayer if irreparable damage may arise from the
collection of such tax and no other adequate remedy is available to him.

In case at bar, Gyarados alleged that he already filed the said taxes claimed by the
local treasurer. Furthermore, prior to availing a writ of preliminary injunction with
the RTC, Gyarados filed a Protest against the assessment but was denied. The local
treasurer proceeded to levy and dispose at public auction Gyarados’ seized
properties which forced the latter to seek the court’s intervention.

Hence, the RTC has power to issue a writ of preliminary injunctions pertaining to
local taxation.

22.
No, the trial court was incorrect in issuing the writ of replevin.
As cited in Enrile v. Vinuya (January 30, 1971), the regular trial courts are devoid
of jurisdiction to interfere in seizure proceedings despite allegation of illegality for
such exclusive authority is vested in the Bureau of Customs.

Here, the court cannot validly issue a writ of replevin in favor of Aiza Calzado
since the trial court cannot interfere with the seizure proceedings by the Customs
officials. Aiza Calzado should have instead pursued the regular remedy which is to
appeal to the Commissioner of Customs.

Therefore, the writ of replevin is invalid.

23.
Strong Foundation can institute this remedies should all government
offices/tribunals find them unexempt from real property taxes:

a) File a protest assessment within 60 days from receipt of notice to the Local
Board of Assessment Appeals (LBAA);
b) Should the LBAA reject the protest, Strong Foundation may appeal the
decision within 60 days from the receipt of notice to the Central Board of
Assessment Appeals (CBAA);
c) If the CBAA rejects the appeal, Strong Foundation may file within 30 days
from the receipt of notice an appeal to the Court of Tax Appeals (CTA) en
banc;
d) If the CTA en banc denies the appeal, file an appeal to the Supreme Court
within 15 days.

24.
Yes, since the Court of Appeals has jurisdiction over the appeal.
In the case of Philippine British Assurance Company v. Republic (February 2,
2010), the Supreme Court held the jurisdiction of the Court of Appeals by
elucidating that the action of the Bureau of Customs (BOC) in collecting
unpaid/unliquidated custom bonds is an action for collection of money. It is not
akin to a tax collection case which falls within the jurisdiction of the Court of Tax
Appeals.

In the given case, the BOC is seeking to collect the unpaid custom bonds issued by
AISC as surety to the deficiency of MLC. It is a case for collection of money, of
which any appeals may be filed to the Court of Appeals and not to the Court of Tax
Appeals.

In collection of unpaid custom bonds, appeals from decisions of the trial court shall
be filed to the Court of Appeals.

25.
A.
A PAN is a communication issued by the Regional Assessment Division, or any
other concerned BIR Office, informing a Taxpayer who has been audited of the
findings of the Revenue Officer, following the review of these findings. If the
Taxpayer disagrees with the findings stated in the PAN, he shall then have fifteen
(15) days from his receipt of the PAN to file a written reply contesting the
proposed assessment.

A FAN, on the other hand, is a declaration of deficiency taxes issued to a taxpayer

who fails to respond to a PAN within the prescribed period, or (2) whose reply to
the PAN was found to be without merit. A FAN contains not only a computation of
tax liabilities, but also a demand for payment within a prescribed period. The
formal letter of demand calling for payment of the taxpayer’s deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which
the assessment is based, otherwise, the formal letter of demand and the notice of
assessment shall be void. If the Taxpayer disagrees with the findings stated in the
FAN, he shall then have thirty (30) days from receipt of FAN to file a protest,
either a request for reconsideration or a request for reinvestigation.

B.
No, the deficiency tax assessment and warrant of distraint and/or levy issued
against KLM Corp. are not valid because KLM Corp. did not receive a PAN. After
the investigation of BIR, if it is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes, the BIR shall issue to the
taxpayer, at least by registered mail, a PAN for the proposed assessment, showing
in detail the facts and the law on which the assessment is based. The taxpayer must
be informed of his liability for deficiency taxes through a PAN and the non-service
of a PAN is fatal to the validity of the assessment.

26.
A.
Transactions done “in the course of trade or business” refer to the sale, barter,
exchange, lease of goods or properties, service by persons, and the importation of
goods in the regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto.
B.
Yes, Mr. X is correct in stating that the association dues are subject to VAT.

Association dues, membership fees, and other assessments and charges are exempt
from VAT but only to the extent of those collected on a purely reimbursement
basis by homeowners’ associations. In this case, the association dues were being
collected for services allegedly rendered “in the course of trade or business”. Thus,
the association dues collected by ABC Village Homeowners’ Association are
subject to VAT.

27.
A.
The following are the instances where gifts made are exempt from donor’s tax:

1. Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government; and
2. Gifts in favor of an educational and/or charitable, religious, cultural, or
social welfare corporation, institution, accredited non-government
organization, trust or philanthropic organization or research institution or
organization, not more than 30% of said gifts shall be used by such donee
for administration purposes.

B.
No, the transaction does not fall under any of the exemption. However, the
transaction may still be exempt from donor’s tax even when the shares of stock
were sold on a selling price that is less than the fair market value of the shares
provided that the sale is made in the ordinary course of business, in a transaction
which is a bona fide, at arm’s length, and free from any donative intent.

28.
A.
No, only the amount pertaining to the value of the decedent’s family home is
deductible from the gross estate, provided that the conditions for the deductibility
of a family are complied with. Funeral expenses are not considered deductible
items under R. A. No. 10963.

Estate taxation is governed by the statute in force at the time of the death of the
decedent. The tax rates and procedures prescribed by R. A. No. 10963, otherwise
known as the Tax Reform for Acceleration and Inclusion Law and R.R. No. 12-
2018 shall govern the estate of decedent who died on or after the effectivity date of
the TRAIN Law which is January 1, 2018. Since the decedent died on December
2018, the operative law in force at this time is the TRAIN Lawn. The said law
removed funeral expenses from the list of deductible items for purposes of estate
taxation.

The conditions for the deductibility of family home from the gross estate of the
decedent are as follows:

1. The family home must be the actual residential home of the decedent and his
family at the time of his death, as certified by the barangay captain of the
locality where the family home is situated;
2. The total value of the family home must be included as part of the gross
estate of the decedent; and
 3. Allowable deduction must be an amount equivalent to the current fair market
value of the decedent’s family home as declared or included in the gross
estate; or the extent of the decedent’s interest (whether conjugal/community,
or exclusive property, whichever is lower, but not exceeding 10, 000,000.00
pesos. (R.R. No. 12-2018, Sec 6(7) (7.2)).

Considering that all the said requisites are complied with, the Php 10,000,000.00
pesos, the amount pertaining to the value of the decedent’s family home is
deductible from the gross estate of A.

B.
Yes, the heirs can claim a standard deduction in the amount of 5,000,000.00.

As provided under R.R. No. 12-2018, the value of the net estate of a citizen or
resident alien of the Philippines shall be subject to a standard deduction. A
deduction in the amount of five million pesos shall be allowed without need of a
substantiation. The full amount of the five million pesos shall be allowed as
deduction for the benefit of the decedent (R.R. No. 12-2018, Sec. 6(1). Since A is a
resident Filipino citizen, the heirs of the said decedent can claim a standard
deduction in the amount of 5,000,000.00.

C.
Yes, for estate tax purposes, the heirs should include the value of the A’s house in
Los Angeles California, USA.
As provided under the the TRAIN Law and R.R. No. 12-2018, for purposes of
computing the estate tax of a resident or a Filipino citizen, all properties, real or
personal, tangible or intangible, wherever situated shall be included in determining
the gross estate. Since A was a resident Filipino citizen, the properties of A within
and outside the Philippines should be included in determining his or her gross
estate. Hence, the heirs of A should include A’s house in Los Angeles, California,
USA in determining the latter’s gross estate.

29.
No, the protest of XYZ Air is not meritorious.

Under the law, an international air carrier with no landing rights in the Philippines
is a resident foreign corporation if its local sales agent sells and issues tickets in its
behalf. An offline international carrier selling passage tickets in the Philippines
through a local general sales agent, is considered a resident foreign corporation
doing business in the Philippines. As such, it is taxable on income derived from
sources within the Philippines and not on Gross Philippine Billings, subject to any
applicable tax treaty. (Air Canada vs. Commissioner of Internal Revenue G.R. No.
169507, January 11,2016).

In the case at bar, XYZ Air was able to sell its airplane tickets in the Philippines
through ABC Agency, it’s general agent in the Philippines. As such, it is taxable
on income derived from sources within the Philippines and not on Gross Philippine
Billings, subject to any applicable tax treaty.

30.
No, B should not pay taxes on the said exchange.
As a rule, upon the sale or exchange of property, the entire amount of the gain or
loss shall be recognized. One of the accepted exceptions to the said rule is when a
property is transferred to a corporation by a person in exchange for stock or unit of
participation in such a corporation of which because of such exchange said person,
alone or together with others, not exceeding four persons, gains control of said
corporation: provided, that stocks issued for services shall not be considered as
issued in return for property (NIRC. Sec. 40 C (6)(c)). Moreover, control, in the
said case, means ownership of stocks in a corporation possessing at least (51%) of
the total voting power of all classes of stocks entitled to vote.

In the case, B transferred his ownership over a 1,000-square meter commercial

land and three-door. As a result, B acquired 51% ownership of ABC Corp., with all
the shares of stock having the right to vote.