Academicus Review Center Inc.

Empowering your dream . Empowering your future

1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

2021 MOCK BAR EXAMINATION

SUBJECT : TAXATION LAW
EXAMINERS : PART 1 | ATTY. RAEGAN CAPUNO, CPA
PART 2 | DR. VIRGINIA JEANNIE P. LIM

*Part 1 examiner did not provide for answer key.

PART 2.1

The BIR sent X Corporation a preliminary assessment notice (PAN). After

several months, BIR noticed that X has not responded to the PAN. BIR issued a
final assessment notice (FAN) and sent the same together with a copy of the
PAN to X Corporation. X disputed the assessment notices, but BIR denied the
protest. On appeal to the CTA, X argued that the simultaneous issuance of the
PAN and FAN violated the procedural due process he is entitled to. On the other
hand, CIR countered that X failed to question the simultaneous issuance of the
PAN and FAN in his protest in the administrative level and therefore has
waived such defense and X cannot raise that issue for the first time on appeal.

a) Did the simultaneous issuance of the PAN and FAN violate the procedural
due process in taxation?
b) Is the CTA correct in giving due course to the appeal of X Corporation?
c) Does CTA acquire jurisdiction on question related on the authority of the
revenue officer to examine the books and records of any person?
Suggested answer:

a) The PAN and FAN cannot be issued simultaneously to a taxpayer. Under

Sec. 228 of the Tax Code, the taxpayer is given fifteen (15) days from
receipt to dispute the PAN, denying the taxpayer this is a violation of due
process. The BIR must show proof that a PAN was sent to the taxpayer
before it is allowed to issue the FAN because the issuance of a FAN
without a PAN is VOID.
b) Yes, the CTA is correct. Even if X failed to mention in its petition for
review the validity of the PAN and FAN simultaneously issued to it. X had
called the attention of the CTA about it in its Motion for Reconsideration,
the CTA is not precluded from considering other related issues, not
otherwise stipulated by the parties which may be necessary to achieve a
just and orderly disposition of the cases in accordance with the Revised

1|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

Rules of the CTA. (Sec. 1, Rule 14, RRCTA) (CIR vs. Yumex Phil. Corp., May
5, 2021)
c) Yes. It may be considered covered by the terms “other matters” under
Sec. 7, RA 1125, or its amendment under RA 9282. The authority to make
an examination or assessment being a matter provided for by the NIRC
is well within the exclusive and appellate jurisdiction of the CTA

PART 2.2
X local government enacted a tax ordinance imposing regulatory fees on
“cell cites” constructed and installed by telecommunication companies within
X’s territorial jurisdiction. SMI, Inc., a telecommunication company questioned
the validity of the tax ordinance. SMI believes that the imposition violates the
“common limitations” of the LGC because the telecommunication companies
are already taxed under the Tax Code.

a) Is SMI correct? Granting that SMI filed a petition for review before the
CTA questioning the validity of the tax ordinance
b) Does CTA have jurisdiction over the petition for review?

Suggested answer:
(a) The imposition of fees on “cell cites” are within the taxing power of the local
government. The common limitations and restriction of the LGC applies to
taxes and not to fees. The local tax ordinance of X imposes regulatory fees
and not taxes. Hence, the tax ordinance of X is valid as it did not violate the
“common limitations and restrictions” on local taxation.
(b) The CTA does not have jurisdiction over questions of constitutionality or
validity of tax ordinance, such controversy should be filed before the
regular court. (Justice Leonen case)

PART 2.3
X Corporation borrowed money from “P”, a private entity. X issued
corporate bonds to “P” in support of the obligations. Thereafter “P” assigned,
sold, and transferred the bonds to other investors numbering to more than
twenty 20. On maturity X gathered all the bonds and surrendered them to the
Bureau of Treasury (BoT) for payment of interest and principal. The BIR
advised the BoT to withhold 20% Final withholding tax from the interest
earned by “P” because the transactions are considered interest earned from
deposit substitutes.

a) What are deposit substitutes?

2|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

b) Is X liable for pay the 20% final withholding tax under the “20-Lender
Rule”?

Suggested answer:

(a) Deposit substitutes is borrowing of funds obtained from 20 or more

individuals or corporate lenders “at any one time” – which is referring to
the time or original issuance of the debts instrument (bonds).
(b) At the time X issued the bonds it was issued only to “P,” so there is only
one (1) lender in the transaction between X and P. The 20% final
withholding tax is applicable only when there are 20 and more lenders in
the primary market (first issuance of new shares between the issuer and
investor) such that if the lender-investors are numbering only 19 and
below, the interest paid in the transaction is not subject to 20% FWTax,
the payor thereof need not withhold the final taxes on the interest paid.
The lender earning the interest will subject the interest income earned to
the ordinary income tax. (Justice Leonen case)

PART 2.4
X Corporation is engaged in garments manufacturing. In 2018, X is
among the 1000 large taxpayers in the region. In 2019 and 2020, it had been
suspending its operation every now and then due to the pandemic. X declared
losses in its ITR for 2019 and 2020. The BIR sent X a preliminary assessment
notice alleging deficiency taxes (income VAT and withholding) under its 2018
tax return. X did not reply due to the COVID situation. In March 2021, BIR sent
X a final assessment notice (FAN) inclusive of a final demand letter (FDL) and
personally served them to X at its principal place of business. The FDL has the
usual statement in an assessment notice stating that “please note that the total
amount and interest under this notice will have to be adjusted if paid after due
date.” X disputed that the final demand letter has no legal basis, arguing among
other things, that it did not contain any definite amount payable and for reason
thereof it is void. The BIR holds otherwise. Decide.

Suggested answer:

Yes, X is correct, the law requires that the FAN must include a FDL when
serve upon the taxpayer. It must contain a definite and conclusive amount.

3|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

The usual statement in an assessment notice stating that “please note that the
total amount and interest herein indicated will have to be adjusted if paid after
due date” is held to be void. (Justice Leonen case)

PART 2.5
X and Y Corporations entered into a merger agreement. Y is the
absorbing corporation while X is the absorbed corporation. BIR assessed Y for
unpaid Documentary Stamps Tax (DST) pursuant to the Merger Agreement.
The BIR discovered that Y is the surviving entity, and it has acquired several
real properties from X where no DST were paid. BIR invokes Sec. 196 of the Tax
Code. It insists that DST is payable regardless of the manner of conveyance
whenever real properties are transferred. The Deed of Assignment is subject
to DST. Is the BIR correct?

Suggested answer:
No, the BIR is not correct. DST is imposed only on conveyances, deeds,
instrument, or writing, where real property is sold to a buyer or purchaser, in
merger or consolidation, there is no buyer or purchasers, rather there is
consolidation of properties, powers and facilities of the constituent companies.
In addition, RA 9243, April 27, 2004 (An Act amending NIRC’s sections on DST)
provides that transfer of real properties to a surviving corporation pursuant to
Merger or Consolidation is NOT subject to DST. (Justice Leonen case)

PART 2.6

a) Briefly discuss the restrictions or limitations on the power of the CIR to

accept or reject a compromise proposal on taxpayer’s civil and criminal
liabilities in violation of the Tax Code.
b) X validly disputed an assessment. While his protest has not yet been
resolved by the CIR X submitted a compromise proposal to the BIR. The
proposal was rejected by the CIR. Thereafter the CIR enforces collection
against X contending that there is now an abandonment of X’s protest of
the assessment when it submitted a compromise proposal. Is the tax
official, correct?

Suggested answer:

4|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

(a) The CIR may initiate a compromise proposal to the taxpayer when (1) there
is a reasonable doubt as to the validity of the claim against the taxpayer
exists or (2) there is proof that the financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax. The CIR is NOT
allowed to accept a compromise proposal from the taxpayer when there is
already a final decision rendered by a competent court on taxpayer’s
liability it when there is FRAUD. If the CIR finds that the taxpayer is
criminally liable, he shall endorse the case to the DOJ for proper
prosecution.
(b) The mere act of applying for a compromise does not equate to
abandonment of any claim/protest against the validity of an assessment
and/or a waiver. It is the act of immediately paying the tax assessment
covered by the waivers of the statute of limitations that renders the
taxpayer estopped from questioning the validity of said assessment and/or
waivers. (Dole Phils., Inc. vs., CIR, CTA case No. 8155, March 21, 2014)

PART 2.7
X received a final assessment notice from the BIR. Notwithstanding, X did
not attend to the BIR’s concern. Two (2) years thereafter the BIR issued a
warrant of levy. X filed a complaint before the RTC for a declaration of nullity
of notice of seizure of real property, declaration of forfeiture of real property,
deed of sale and for specific performance for reconveyance of his real property.
The CIR moved for the dismissal of his complaint contending that the regular
court has no jurisdiction. Is the CIR correct?

Suggested answer:
Yes, the CIR is correct. When X failed to seasonably dispute the final
assessment sent to him by the BIR, the assessment notice ripens to a collection
case. Thereafter, the BIR may enforce collection administratively by issuance
of warrant of distraint or levy against taxpayer’s property. X is circumventing
the law when he filed a complaint before the RTC because the basis of all his
arguments is actually grounded on the validity of the assessment which he
failed to dispute.

PART 2.8
X received a valid assessment from RDO. X failed to dispute the same

5|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

seasonably within the 30-day period from receipt thereof. Thereafter, BIR
enforces tax collection. X appealed to the CTA disputing the validity of the
assessment which was used as the basis of the BIR’s collection. Did the CTA
acquire jurisdiction on X’s appeal?

Suggested answer:
No. The CTA does not have jurisdiction on X’s appeal. When X failed to
dispute the final assessment notice of the BIR, the assessment is an
uncontested/undisputed assessment. The CTA’s jurisdiction on BIR’s
assessment notices is strictly related to a DISPUTED ASSESSEMENT NOTICE
only.

CTA has not acquired jurisdiction because the assessment was not disputed
before the RDO. When X received the assessment from the RDO, he has an
administrative remedy. He should have initiated the prescribed administrative
procedure to obtain relief and to pursue it to its appropriate conclusion before
seeking judicial intervention in order to give the administrative agency an
opportunity to decide the matter correctly and prevent unnecessary and
premature resort to court. Before a taxpayer is allowed to seek judicial remedy,
he must prove that the principles of administrative remedies were exhausted.
(Don’t forget - “no dispute of an assessment no appeal” to the CTA.)

PART 2.9
In 2017 X gave its four (4) managerial employees brand new car each. X
was not aware that it is required to pay the Fringe Benefit Tax (FBT). In 2019
X was under BIR investigation and it was assessed of deficiency final
withholding tax (FBT). X argued that since the managers are in possession of
the car and benefitting therefrom, they should be held liable for the unpaid tax.
Is the contention of X tenable? Reason.

Suggested answer:
No, the contention of X is not correct. When employers give fringe
benefits to its managerial/supervisory employees that are provided under Sec.
33, such as cars, among others, the employers shall deduct the fringe benefit
tax from the value of the benefit given and remit the subject amount to the BIR.

6|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

The employers are the withholding agents, and it is their responsibility to remit
the FBT to the BIR within the first 25 days of the first month of the succeeding
quarter when the benefits were given.

PART 2.10
a) Distinguish a surcharge from an interest in case of delinquency or
deficiency taxes.
b) Briefly explain the Loss Limitation Rule in Taxation

Suggested answer:
a)
SURCHARGE
This is a deterrent for late payment
of taxes.
It is 25% of the main tax and it is
not based on periods of delay. 50%
in case of finding of fraud.
It is a civil penalty imposed only
once for late payment within the
year. However, it should be
computed yearly based on the total
unpaid tax for each particular year.
It is not subject to a compromise
agreement.
INTEREST
This is a sanction for withholding the
payment of money that rightfully
belongs to the government.
It is computed in proportion to the
period of delay at 12% per annum (IR
taxes) and 2% per month with
maximum of 72% only for local taxes.
In case of extended payment, the CIR
or local treasurer shall impose
interest on extended payment at the
rate of 20% per annum.
The computation of interest payable
may be adjusted under a compromise
agreement.

(b) The Loss Limitation Rule maintains that capital loss sustained may be
deducted from capital gain realized within the same year provided it shall not
be more than the net taxable income of the taxpayer also within the same year.

PART 2.11
X operates an auto repair shop. Due to the COVID pandemic he operated
the shop for seven (7) months only in 2019 and in 2020 he was in operation

7|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

for four (4) months only. As a result of the repeated business lockdown X
sustained losses. In April 2021, X asked his friend to help him prepare his
income tax return. His friend told him to compute his gross receipts in 2019
and 2020 separately and multiply the same by the 2% MCIT as there is no need
to apply the gradual income tax rates provided by law having incurred losses
in those years.
Is the advice of X’s friend, correct? Explain.

Suggested answer:
No. The advice of X’s friend is not correct. The 2% MCIT is applicable only
to corporations paying the regular corporate income tax. X is a sole
proprietor, and he has no concern with the 2% Minimum Corporate Income
Tax. Whatever operating loss he sustained may be carried over as deduction
for the next three (3) consecutive taxable years immediately following the
year of such loss.

PART 2.12
X International airlines has landing rights in our country. It transports
passengers and/or cargoes into and out of our country every other day.

(a) What taxes are payable by X to the BIR for its incoming and outgoing
passengers and/or cargoes?
(b) Granting that X has no landing rights in our country, but it has arranged
transshipment of passengers and/or cargoes with a traveling agency (TA)
to the effect that customers willing to take its flight to their destination
shall board another plane and exit from the Philippines to Hong Kong.
Thereafter, to board X’s plane in Hong Kong to their destination. TA is not
an exclusive dealer of X but does this kind of travel arrangement with other
international airlines with no landing rights in the Philippines. Is X taxable
in the country considering that the passengers and/or cargoes exit from
the Philippines? Reason.

Suggested answer:

a) X, being an international airline with landing rights in our country shall

be subject to the 2.5% Gross Philippines Billing Tax for income tax
purposes and to the business tax of 3% common-carriers Tax under Sec.
118. Of the Tax Code.

8|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

b) If X does not have landing rights in our country but sells tickets through
traveling agencies, it shall be subject to the regular corporate income tax
of 25% on its net taxable income.

PART 2.13

a) X is a businessman engaged in import and export activities. In the course

of his operation in 2020 X has unutilized input taxes. If X desires to claim
the unutilized input taxes under the Zero-rate VAT, (a) How much time
does X have to apply for tax credit and where is the reckoning point of
the prescriptive period to claim?
b) Granting that X filed his claim with the BIR on the last day of the
prescriptive period to claim by submitting documents in support thereof,
but the CIR denied his claim for reason that his documents were
incomplete. Thereafter, X appealed to the CTA outside of the 2-year
period of claim. The BIR opposed the appeal contending that X’s claim is
time-barred under the Doctrine of Twin Prescriptive period of Sec. 229,
NIRC. Is the BIR correct, Explain?

Suggested answer:
(a) As a businessman covered by the Zero-rate VAT, X has two (2) years to
claim his/its unutilized input taxes from the government which is
reckoned from the last day of the last month of the quarter of export.
(b) No, the BIR is not correct. The Doctrine of Twin Prescriptive period
does not apply to VAT cases but to invalid payments only under Sec.
229, Tax Code. Under the VAT law, the taxpayer-claimant may appeal
to the CTA even outside of the 2-year period provided he has a decision
of the CIR rendered within the 120-day period after submission of
complete documents in support of his claim, or within 30 days from
expiration of the 120 days in case of inaction of the CIR on his claim.

PART 2.14
X has been working with the same employer for the last 25 years, he
intends to avail of the optional retirement benefits (ORB) being offered by his
employer.
(a) Is the amount received by X under the ORB taxable? Explain.
(b) Granting that X retired from service upon reaching the mandatory
retirement age of 60 and he deposited his retirement benefits in the

9|P age
 Academicus Review Center Inc.
Empowering your dream . Empowering your future
1408 Ermita Center, 1350 Roxas Blvd., cor. Sta. Monica St. Ermita, Manila
Globe (0977) 675 1793

bank, is the interest earned from his bank deposit exempt from the 20%
final withholding tax? Reason.

Suggested answer:

(a) The optional retirement benefits shall be exempt from income tax ONCE if
the retiring employee is more than 50 years old and has rendered for than
10 years of service with the same employer. If the 50-=10 Rule is not met,
the ORB is taxable.
(b) X’s bank deposits shall be subject to the 20% final withholding tax. The
exemption from income tax on his retirement benefits shall not include
final withholding tax on his passive (interest) income from the bank.

PART 2.15

a) Is injunctive relief available as a remedy to assail the collection of

taxes? Reason.
b) Enumerate the four (4) different periods prescribed under the Tax Code
for the valid collection of internal revenue taxes.

Suggested answer:
(a) No. As provided under Sec. 218 of the Tax Code, “No court shall have the
authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the Code.” An exception to
this is when the taxpayer has a seasonably filed appeal before the CTA, he
may move for injunction before the CTA if the BIR enforces tax collection.
(b) The four different period for collection of an IRT taxes are:
1. Within 3 years from due date without an assessment.
2. Within 10 years without an assessment in case of failure to file a return
or finding of fraudulent return.
3. In case of a valid assessment but taxpayer failed to seasonably dispute
the assessment notice - Within 5 years from final assessment.
4. In case of a valid assessment and taxpayer filed a valid protest –
collection shall be enforced within 5 years from the finality of the
assessment (failure to appeal to the CTA).

---NOTHING FOLLOWS---

10 | P a g e